Corporate and Commercial Practice Oral exam prep questions and sample

answers.
1. Partnerships

1-10: Law Applicable to Partnerships

1. What is the primary legislation governing partnerships in Uganda?

Answer: The primary legislation is The Partnership Act, Cap 110.
Explanation: This Act provides the foundational legal framework for partnerships in Uganda,
defining what constitutes a partnership (Section 2(1)), outlining the elements, rights, duties, and
liabilities of partners, and addressing formation, dissolution, and other operational aspects. It
draws from English partnership law principles but is tailored to Uganda’s legal context. The Act is
supplemented by other statutes like the Companies Act for numerical limits and the Business
Names Registration Act for procedural matters, but it remains the core statute for substantive
partnership law.

2. Which Act regulates the registration of business names for partnerships?

Answer: The Business Names Registration Act, Cap 105.
Explanation: This Act mandates the registration of business names for firms, including
partnerships, operating under a name other than the true surnames of the partners (Section 2).
Registration ensures transparency and distinguishes one business from others, protecting
creditors and the public. It requires filing specific particulars like the business name, nature, and
partners’ details (Section 4). Non-compliance can lead to penalties (Section 8), emphasizing the
importance of adhering to this procedural requirement to avoid legal disputes over identity or
liability.

3. What role does the Constitution of Uganda play in partnership law?

Answer: The Constitution of the Republic of Uganda provides the overarching legal framework
under which all laws, including partnership laws, operate.
Explanation: As the supreme law, the Constitution ensures that all statutes, including the
Partnership Act, align with its principles, such as the right to associate (Article 29) and engage in
lawful economic activities. It indirectly influences partnerships by guaranteeing freedoms that
enable business formation and operations. For instance, constitutional protections against
discriminatory laws ensure equal treatment of partners, including foreigners, subject to
immigration laws. Any partnership law conflicting with the Constitution would be void,
underscoring its foundational role.

4. How does the Companies Act relate to partnerships?

Answer: The Companies Act, Cap 106 sets the maximum number of partners in a partnership at
2 to 20 (Section 372) and distinguishes partnerships from companies.
Explanation: Section 372 limits partnerships to prevent them from resembling large
corporations, which must incorporate under the Companies Act to enjoy separate legal
personality and limited liability. This distinction was highlighted in Akinose vs. AITCO (1961),
which clarified numerical caps. The Companies Act also allows companies to be partners
(Section 15), recognizing their legal entity status. Understanding this interplay is crucial, as it
 affects decisions on business structure—partnerships for smaller, personal ventures versus
companies for larger, formal entities.

5. What is the significance of the Registration of Documents Act in partnerships?

Answer: The Registration of Documents Act, Cap 81 governs the registration of partnership
deeds with the Registrar of Documents for evidential value.
Explanation: While the Partnership Act does not mandate registration, registering a partnership
deed under this Act (Section 3) strengthens its legal standing by providing proof of terms,
partners’ identities, and obligations. This is vital in disputes, as seen in Kafeero vs. Turyagenda
(1980), where the court noted registration’s evidential importance. The Act requires a certified
copy of the deed (Section 5) and payment of a fee (UGX 10,000, per 2005 Rules), ensuring
formal documentation. This process enhances transparency and protects partners and third
parties dealing with the firm.

6. Which Act requires payment of stamp duty on partnership documents?

Answer: The Stamps Act, Cap 339.
Explanation: This Act imposes stamp duty on instruments executed or received in Uganda,
including partnership deeds and related documents (Section 2). For partnerships, a fixed duty of
UGX 10,000 applies to registration instruments, as per the Stamps Act amendments. Payment
within 30 days ensures compliance, avoiding penalties. This fiscal requirement underscores the
government’s role in regulating business documentation, ensuring revenue collection while
formalizing agreements. Non-payment can render documents inadmissible in court, affecting
their enforceability.

7. How does the Uganda Citizenship and Immigration Control Act affect partnerships?
Answer: The Uganda Citizenship and Immigration Control Act, Cap 66 requires foreigners to
possess a valid entry permit and work permit to join partnerships (Section 54).
Explanation: This Act regulates the participation of non-citizens in Ugandan businesses,
including partnerships, to ensure compliance with immigration and labor laws. A foreigner
without these permits cannot legally engage in profit-making activities, protecting national
economic interests. For example, a foreign partner in a law firm must meet these requirements
alongside Advocates Act qualifications. This restriction balances openness to foreign investment
with regulatory oversight, ensuring only authorized individuals contribute to partnerships.

8. What are the Business Names Registration Rules?

Answer: The Business Names Registration Rules, Statutory Instrument 109-1 (as amended by
Act 53 of 2005), outline the procedure for registering business names for partnerships and other
firms.
Explanation: These rules, made under the Business Names Registration Act, detail the process of
filing Form A, which includes particulars like business name, nature, and partners’ details (Rule
5). They also cover changes in particulars (Rule 7) and removal of names upon cessation (Rule 8).
A fee of UGX 20,000 is charged for registration, with UGX 25,000 for name reservation.
Compliance ensures legal recognition of the business name, preventing conflicts and facilitating
transactions. The rules streamline administrative processes, making registration accessible yet
mandatory for transparency.
 9. How does the Advocates Act relate to partnerships in legal practice?
Answer: The Advocates Act, Cap 295 governs the establishment of law firms as partnerships
and regulates advocates’ qualifications, enrollment, and conduct.
Explanation: Only enrolled advocates can form law firm partnerships (Sections 64, 70), ensuring
professional competence. The Act requires law firms to register names under the Business
Names Registration Act and comply with chamber inspections (Advocates (Inspection)
Regulations). It also mandates practicing certificates (Section 16), protecting clients from
unqualified practitioners. For example, a partnership like “All Solutions Advocates” must meet
these standards, ensuring ethical and competent legal services. The Act’s oversight through the
Law Council maintains public trust in legal partnerships.

10. What is the relevance of common law and equity in partnerships?

Answer: Common law and doctrines of equity supplement statutory provisions, particularly in
defining fiduciary duties, partnership formation, and dissolution.
Explanation: In the absence of specific statutory guidance, common law principles fill gaps, as
seen in Stenos vs. Mandilas, which emphasized that partnerships are contractual and require a
deed for clarity, though not mandatory. Equity imposes fiduciary duties like utmost good faith,
ensuring partners act transparently (e.g., V Law, 1905). These principles ensure fairness in
partner relations and dealings with third parties, complementing the Partnership Act’s
framework. For instance, equitable remedies like accounting for secret profits protect partners’
interests, making these doctrines vital for a holistic understanding of partnership law.

11-20: Nature of Partnerships

11. How is a partnership defined under the Partnership Act?

Answer: A partnership is defined under Section 2(1) of the Partnership Act, Cap 110, as a
relationship between two or more persons carrying on a business with a view to obtaining
profits.
Explanation: This definition encapsulates the essence of a partnership as a collaborative, profit-
oriented venture. It requires at least two persons, distinguishing it from sole proprietorships,
and emphasizes a commercial purpose, excluding non-profit entities like clubs. The “view to
profit” criterion ensures the business has a financial motive, even if profits are not yet realized.
The definition aligns with common law principles, as seen in cases like Khan and Others v Miah,
which stress actual business activity. Understanding this definition is critical for identifying
partnerships in legal disputes or formation scenarios.

12. What case law supports the informal formation of partnerships?

Answer: The case of Bubare Co. v Meble Kente (1982) HCB 143 supports the principle that
partnerships can be formed informally without a written agreement.
Explanation: In this case, the court held that the absence of a formal deed does not negate a
partnership’s existence if the parties’ conduct demonstrates a shared business purpose and
profit-sharing. This reflects the flexibility of partnership law, allowing agreements to be oral or
implied, as further supported by Dr. Okello N. David v Komakech Stephen. Such informality is
practical for small businesses but can lead to disputes over terms, highlighting the advisability of
written deeds for clarity and evidence, especially in litigation.
13. What distinguishes a partnership from a sole proprietorship?
Answer: A partnership involves two or more persons sharing profits and liabilities, while a sole
proprietorship is owned and operated by one individual who bears all profits and losses.
Explanation: Partnerships require collaboration, with partners acting as agents for each other
(Section 5, Partnership Act), creating mutual obligations and unlimited liability. In contrast, a
sole proprietor has full control and personal liability without sharing responsibilities.
Partnerships allow for pooled resources and expertise, as seen in multi-partner law firms, but
increase complexity in decision-making. Sole proprietorships, like a single advocate’s practice,
offer simplicity but limit growth due to reliance on one person. This distinction guides
entrepreneurs in choosing a business structure based on scale and risk.

14. How many members can a partnership have?

Answer: A partnership can have 2 to 20 members, as stipulated under Section 372 of the
Companies Act, Cap 106, and reinforced in Akinose vs. AITCO (1961) WNLR 215.
Explanation: The minimum of two ensures the collaborative nature of partnerships, while the
cap at 20 prevents partnerships from functioning as quasi-companies, which require
incorporation for larger memberships. Professional partnerships, like law firms, may extend to
50 under Section 2(2) of the Partnership Act. This limit balances flexibility with regulatory
oversight, ensuring partnerships remain manageable. Exceeding this number risks legal
reclassification, affecting liability and operations, as seen in historical English cases like Akinose,
which Uganda’s law mirrors.

15. What did the court in Festo Sendi vs. Clearers Limited hold about partnerships?
Answer: In Festo Sendi vs. Clearers Limited, CA 1/1997, the court held that the actual receipt of
profits, not merely an intention to share profits, determines the existence of a partnership.
Explanation: This ruling clarifies that a partnership is not formed by plans alone but by tangible
business activity and profit distribution. It aligns with Section 3 of the Partnership Act, which lists
profit-sharing as prima facie evidence but requires more to confirm a partnership. The case
underscores the need for evidence of operational engagement, such as joint management or
financial contributions, to distinguish partnerships from other arrangements like loans or
employment. This principle helps courts resolve disputes over whether a partnership legally
exists.

16. What other forms of business organizations exist besides partnerships?

Answer: Other forms include sole proprietorships, companies, cooperative societies, and joint
ventures.
Explanation: Sole proprietorships involve one owner with unlimited liability, ideal for small
ventures but risky. Companies, under the Companies Act, offer separate legal personality and
limited liability, suitable for larger enterprises (Salomon vs. Salomon). Cooperative societies,
governed by the Cooperative Societies Act, Cap 107, promote members’ economic interests
with a minimum of 30 members (Section 4). Joint ventures are temporary, project-specific
arrangements without ongoing partnership characteristics. Each structure serves distinct
purposes, allowing entrepreneurs to choose based on scale, liability, and goals, with
partnerships balancing collaboration and simplicity.
17. What is the significance of intention in forming a partnership?
Answer: The intention of partners to join together for the purpose of carrying on a business and
sharing profits or losses is crucial, as it is a question of fact, per W v Commissioner of Tax.
Explanation: Intention distinguishes partnerships from casual collaborations or joint ownership.
Courts assess whether parties genuinely aimed to operate a business together, looking at
actions like capital contributions or profit distribution. This subjective element, combined with
objective conduct (e.g., signing contracts as partners), confirms a partnership’s existence.
Without mutual intent, arrangements like co-ownership do not qualify, as clarified in Section 3
of the Partnership Act. This principle protects parties from unintended legal obligations while
ensuring clarity in business relationships.

18. Can a partnership exist without a formal agreement?

Answer: Yes, a partnership can exist without a formal agreement, as it may be formed orally or
implied by the parties’ conduct, as held in Dr. Okello N. David v Komakech Stephen.
Explanation: The court in this case recognized a partnership based on equal contributions to a
taxi business, despite no written deed, emphasizing that conduct—like joint investment and
profit-sharing—suffices. Section 3 of the Partnership Act supports this by focusing on business
activity and profit-sharing, not documentation. This flexibility accommodates informal business
practices common in Uganda but risks ambiguity in disputes, as terms are harder to prove.
Registering a deed, while not mandatory, mitigates such risks by providing clear evidence.

19. How does a partnership differ from a joint venture?

Answer: A partnership is an ongoing business with shared profits and unlimited liability, while a
joint venture is a temporary arrangement for a specific project without forming a lasting
partnership.
Explanation: Partnerships involve continuous collaboration under the Partnership Act, with
partners as agents (Section 5) and mutual obligations. Joint ventures, often called quasi-
partnerships, are limited to a defined goal, like a construction project, dissolving upon
completion. Section 34(1)(b) of the Partnership Act acknowledges single-venture partnerships,
but joint ventures lack the permanence and agency of true partnerships. This distinction affects
liability, management, and dissolution, guiding parties in structuring short-term versus long-
term collaborations.

20. What is the evidential value of registering a partnership deed?

Answer: Registering a partnership deed with the Registrar of Documents, as per Kafeero vs.
Turyagenda (1980) HCB 122, provides evidential value by proving the partnership’s existence
and terms.
Explanation: While registration is not compulsory under the Partnership Act, it strengthens legal
certainty in disputes over partnership status, partner roles, or obligations. The Registration of
Documents Act (Section 5) requires a certified copy, enhancing admissibility in court. For
example, a registered deed clarifies profit-sharing ratios or management rights, reducing
litigation risks. It also aids third parties, like creditors, by confirming the firm’s structure. Non-
registration does not invalidate a partnership but complicates enforcement, making registration
a prudent step.
21-30: Elements of a Partnership

21. What is the first element of a partnership?

Answer: The first element is a relationship between two or more persons, as a single person
cannot form a partnership.
Explanation: This requirement, rooted in Section 2(1) of the Partnership Act, ensures
partnerships are collaborative. The relationship governs partners’ rights, duties, and interactions
with third parties, creating a mutual agency (Section 5). For instance, two advocates forming a
law firm establish this relationship by agreeing to share profits and manage cases jointly.
Without multiple parties, the arrangement would be a sole proprietorship. This element
underscores the communal nature of partnerships, distinguishing them from individual
enterprises.

22. What does “carrying on a business” mean in a partnership?

Answer: “Carrying on a business” means engaging in a trade, occupation, or profession beyond
preparatory stages, as defined in Section 1(a) of the Partnership Act.
Explanation: This element requires active business operations, not just planning. For example,
opening a shop or providing legal services qualifies, but negotiating a future venture does not.
The case of Khan and Others v Miah clarified that preparatory acts, like securing premises, do
not suffice; actual trading is needed. The business must have a commercial element, excluding
charitable activities. This criterion ensures partnerships are dynamic, profit-driven entities,
protecting parties from premature legal obligations.

23. What case clarified that a partnership requires actual business activity?
Answer: Khan and Others v Miah and Others held that a partnership requires actual business
activity, not merely an intention to do business.
Explanation: In this case, individuals planned to run a restaurant but only undertook
preparatory steps. The court ruled that a partnership arises only when the business is
operational, such as serving customers or generating revenue. This aligns with the Partnership
Act’s focus on “carrying on” a business (Section 2(1)). The ruling prevents premature liability for
planned ventures, ensuring clarity in legal status. For students, this case highlights the need to
distinguish intent from action when advising clients on partnership formation.

24. Why is “carrying on business in common” important?

Answer: “Carrying on business in common” means the Ascertainable that the business is
conducted by or on behalf of all partners, though not all need to be active.
Explanation: This element, per Section 2(1), ensures that the partnership operates as a
collective effort, with partners sharing control and benefits. It does not require all partners to
manage daily operations; some may be dormant but still liable. For example, in a law firm, one
partner may handle cases while another provides capital. This communal aspect creates mutual
agency (Section 5), binding all partners to each other’s acts. It distinguishes partnerships from
arrangements where one party merely funds without control, ensuring shared responsibility.

25. What distinguishes a partnership from a club or society?

Answer: A partnership is formed with a view to make profit, unlike clubs or societies created for
religious, social, educational, or recreational purposes.
Explanation: The profit motive, per Section 2(1), is central to partnerships, as seen in Francis
 Sembunya v All Port Services. Clubs, like a church group, focus on non-commercial goals and
lack mutual agency or unlimited liability. Partnerships involve commercial risks and rewards,
with partners personally liable for debts. This distinction guides legal classification, ensuring only
profit-driven entities face partnership liabilities. For instance, a sports club sharing fees is not a
partnership unless it seeks profits beyond covering costs.

26. Can a business that hasn’t made profits be a partnership?

Answer: Yes, a business can be a partnership if entered with a view to make profit, even
without actual profits, as confirmed in Francis Sembunya v All Port Services (U) Ltd.
Explanation: The court in Sembunya held that a partnership existed when parties collaborated
to buy and resell cement for profit, regardless of outcomes. Section 2(1) emphasizes intent, not
success. For example, a new law firm incurring losses while building a client base remains a
partnership if profit is the goal. This principle encourages entrepreneurial ventures by not
penalizing initial failures, but it requires evidence of profit-oriented activity to avoid
misclassification.

27. What did the court in Smith v Anderson decide about single acts?
Answer: In Smith v Anderson, the court held that a single act, like buying shares through a trust,
does not constitute “carrying on a business,” which requires repetition of acts.
Explanation: The case involved investors subscribing to a trust for one transaction, which the
court ruled lacked the ongoing nature of a partnership. Common law defines business as
repetitive commercial activity, like regular trading or service provision. This prevents one-off
collaborations from incurring partnership liabilities, protecting parties from unintended
obligations. However, Section 34(1)(b) of the Partnership Act allows single-venture partnerships
if explicitly agreed, balancing flexibility with clarity.

28. How does Section 34(1)(b) of the Partnership Act affect single ventures?
Answer: Section 34(1)(b) impliedly recognizes partnerships for a single venture by providing for
their dissolution, validating such arrangements.
Explanation: While common law (e.g., Smith v Anderson) requires repetition, this section
accommodates partnerships formed for one project, like constructing a building, by allowing
their legal recognition and orderly dissolution. It ensures partners can limit their collaboration
without ongoing obligations, provided the intent is clear. For example, two contractors
partnering for one bridge project can rely on this provision. This flexibility supports temporary
business alliances while maintaining statutory oversight.

29. What is prima facie evidence of a partnership under Section 3?

Answer: Receipt of a share of profits is prima facie evidence of a partnership, but it does not
conclusively make one a partner (Section 3(3)).
Explanation: This rule helps courts assess partnership status but requires additional evidence,
like control or agency, to confirm. For instance, an employee receiving a profit-based bonus is
not a partner unless they share management duties. This protects non-partners from liability
while allowing courts to infer partnerships from financial arrangements. Cases like Festo Sendi
reinforce that profit-sharing must align with business activity, ensuring accurate classification in
disputes.
 30. Does joint ownership of property create a partnership?
Answer: No, joint tenancy, tenancy in common, or joint property ownership does not
necessarily create a partnership, even if profits are shared (Section 3(1)).
Explanation: Owning property together, like co-owning land, does not imply a business
relationship unless accompanied by a profit-making venture. Section 3 clarifies that sharing
rents or proceeds alone is insufficient without mutual agency or business intent. For example,
siblings inheriting a rental property are not partners unless they actively manage it as a business.
This rule prevents automatic liability for co-owners, ensuring partnerships are based on
deliberate commercial collaboration.

31-40: Capacity to Be a Partner

31. Who can generally enter into a partnership?

Answer: Generally, persons of majority age (18 and above) can enter into partnerships, as per
common law principles of contractual capacity.
Explanation: Partnerships are contracts requiring legal capacity to agree, as partnerships involve
mutual obligations and liabilities. Adults can freely commit to sharing profits and debts, as seen
in standard business partnerships. Exceptions exist for minors and companies, but the default
rule ensures partners can make informed decisions. This principle protects the partnership’s
stability by excluding those unable to fully consent, aligning with general contract law under the
Contract Act, Cap 284.

32. Can a minor be a partner in a firm?

Answer: Yes, a minor can be a partner, but they are only liable for debts upon reaching majority,
per Section 12 of the Partnership Act and Lovelt vs. Bearchamp (1834).
Explanation: Minors (under 18) can join partnerships, benefiting from profits, but their liability is
limited to their share in partnership property (Section 10). Upon turning 18, they become fully
liable unless they repudiate the partnership (Section 11). In Lovelt, the court protected minors
from pre-majority debts, balancing their participation with legal safeguards. This allows young
entrepreneurs to engage in business under supervision while protecting them from premature
financial ruin, a practical consideration in family-run firms.

33. What is the liability of a minor partner before majority?

Answer: A minor’s share in partnership property is liable for firm debts, but they are not
personally liable (Section 10, Partnership Act).
Explanation: This provision protects minors from losing personal assets, limiting creditors’
claims to their investment in the firm. For example, a minor contributing UGX 1 million to a
partnership risks only that amount during minority. Upon majority, full liability applies unless
they exit, per Section 11. This balance encourages youth involvement in business while
safeguarding their future, reflecting equitable principles that prioritize fairness for vulnerable
parties.

34. Can a company be a partner in a firm?

Answer: Yes, a company can be a partner, as it is a separate legal entity under Section 15 of the
Companies Act and Salomon vs. Salomon (1877).
 Explanation: Salomon established that companies have distinct legal personalities, enabling
them to contract as partners. A company can contribute capital and share profits, acting through
its directors. For instance, a corporate partner in a law firm brings financial stability but must
comply with partnership duties. This capacity expands partnership flexibility, allowing corporate
expertise and resources, but requires careful documentation to align with the Partnership Act’s
agency principles.

35. Why can’t persons of unsound mind be partners?

Answer: Persons of unsound mind lack the capacity to contract, as held in Wonge vs. Toymbee
(1910) and supported by Halsbury’s Laws of England, Vol. 28.
Explanation: Mental incapacity prevents understanding partnership obligations, like profit-
sharing or liability. Contracts with such persons are voidable, risking partnership instability.
Toymbee ruled that agreements with mentally incapacitated individuals are unenforceable,
protecting all parties. For example, a person with severe dementia cannot commit to a law
firm’s fiduciary duties. This rule aligns with the Contract Act’s requirement for sound mind,
ensuring partnerships are based on valid consent.

36. What conditions must foreigners meet to join a partnership?

Answer: Foreigners need a valid entry permit and work permit, as required by Section 54 of the
Uganda Citizenship and Immigration Control Act, Cap 66.
Explanation: These permits ensure foreigners are legally authorized to reside and work in
Uganda, preventing unauthorized economic activity. For instance, a foreign advocate joining a
Ugandan law firm must secure these alongside Advocates Act compliance. This requirement
protects national interests while allowing global collaboration, balancing openness with
regulation. Non-compliance can lead to deportation or fines, impacting the partnership’s
operations and reputation.

37. Can public officers form partnerships?

Answer: Yes, public officers can form partnerships, subject to approval by their head and
compliance with standing orders.
Explanation: Public officers, like civil servants, face restrictions to avoid conflicts of interest.
Standing orders may require permission to ensure their official duties are not compromised. For
example, a government lawyer joining a private law firm partnership needs clearance to prevent
misuse of public resources. This oversight maintains integrity in public service while allowing
officers to engage in lawful business, provided it aligns with their employment terms.

38. What happens to a minor’s liability upon reaching majority?

Answer: Upon reaching majority, a minor becomes fully liable for all partnership obligations
unless they give public notice of repudiation within a reasonable time (Section 11, Partnership
Act).
Explanation: This transition ensures minors can exit partnerships to avoid unwanted liabilities,
as seen in Lovelt vs. Bearchamp. If they remain silent, they are deemed to accept full
responsibility, including personal liability for debts. For instance, a minor partner in a trading
firm must notify the public upon turning 18 to avoid liability for past and future debts. This
protects their autonomy while ensuring creditors’ rights, balancing fairness with legal certainty.
 39. What legal principle supports a company’s capacity to partner?
Answer: The principle that a company is a separate legal entity, distinct from its members, as
established in Salomon vs. Salomon (1877) AC 22 and reinforced in Stephen vs. Katonagen
(1918).
Explanation: Salomon clarified that companies can contract independently, including as
partners, without implicating shareholders personally. This allows companies to join
partnerships, contributing assets and expertise, as seen in corporate law firm partnerships. The
principle ensures companies bear partnership liabilities up to their investment, aligning with
Section 15 of the Companies Act. This legal fiction enhances business flexibility, enabling
complex structures while maintaining clear liability boundaries.

40. Why is an agreement with an insane person avoided in partnerships?

Answer: An agreement with an insane person is avoided because they lack contractual capacity,
rendering the agreement voidable, as per Halsbury’s Laws of England, Vol. 28, Para. 499 and
Wonge vs. Toymbee (1910).
Explanation: Mental incapacity undermines the ability to consent to partnership duties, like
managing finances or sharing losses. Such agreements risk disputes and instability, as the insane
partner cannot fulfill fiduciary obligations. For example, a partnership deed signed by someone
with severe mental illness could be challenged, disrupting operations. Avoiding such agreements
protects all parties, aligning with equitable principles of fairness and the Contract Act’s capacity
requirements.

41-50: Formation of a Partnership

41. Is there a statutory procedure for forming a partnership?

Answer: No, there is no statutory procedure in the Partnership Act; formation is governed by
common law and equity, requiring an agreement, as per Stenos vs. Mandilas.
Explanation: Partnerships arise from contracts, which common law allows to be oral, written, or
implied by conduct. Stenos emphasized that a partnership deed, while advisable, is not
mandatory, reflecting flexibility for informal businesses. The Partnership Act focuses on
substantive rules (e.g., Section 3), leaving procedural aspects to general contract principles. This
lack of formality suits small enterprises but necessitates clear agreements to avoid disputes, as
courts rely on evidence of intent and activity to confirm partnerships.

42. What is a partnership deed?

Answer: A partnership deed is a written agreement outlining the terms of the partnership, such
as name, capital contributions, profit-sharing, and dispute resolution, though not legally
required.
Explanation: The deed formalizes partners’ intentions, reducing ambiguity in roles and
obligations. It includes critical clauses like duration, management rights, and dissolution terms,
as seen in the sample deed for “Friends United Enterprise LLP.” While common law (Lindley on
Partnership) allows informal agreements, a deed enhances enforceability, especially in court, by
proving terms. For example, a law firm’s deed clarifies partners’ case-handling duties,
preventing conflicts. Registration under the Registration of Documents Act adds evidential
weight.
43. What are key terms included in a partnership deed?
Answer: Key terms include the firm’s name, partners’ names and addresses, commencement
date, duration, capital contributions, profit and loss ratios, management duties, bank account
signatories, dispute resolution, and dissolution procedures.
Explanation: These terms ensure clarity and governance, as outlined in the textbook’s sample
deed. For instance, specifying profit-sharing (e.g., equal shares) prevents disputes, while naming
signatories secures financial control. Clauses on death or bankruptcy, like vesting interests in
trust, protect continuity. A comprehensive deed, like that of “All Solutions Advocates,” aligns
with common law principles (Stenos vs. Mandilas), balancing flexibility with structure. Omitting
key terms risks default application of the Partnership Act, which may not suit partners’
intentions.

44. What case clarified that a partnership deed is not essential?

Answer: Dr. Okello N. David v Komakech Stephen held that a partnership can exist without a
deed if evidenced by conduct, such as equal contributions to a business.
Explanation: The court recognized a partnership when both parties funded a taxi, despite no
written agreement, focusing on their joint business activity. This aligns with Section 3’s emphasis
on profit-sharing and conduct over formalities. The ruling supports informal partnerships
common in Uganda, like family businesses, but highlights risks of ambiguity in disputes.
Registering a deed, while not required, would have simplified proving terms, underscoring the
balance between flexibility and legal certainty.

45. What is the test for the existence of a partnership?

Answer: The test is carrying on a business in common with a view to profit, not merely agreeing
to do so, per Lindley on Partnership (1950).
Explanation: Lindley emphasizes actual business activity, like trading or service provision, over
future plans. This test, reflected in Section 2(1), requires evidence of collaboration and profit
intent, as seen in Festo Sendi. For example, two advocates sharing case fees meet this test, but
planning a firm without operations does not. Courts use this to distinguish partnerships from
other arrangements, ensuring liability aligns with active participation. This principle guides legal
advice on partnership status.

46. Can a future agreement create a partnership?

Answer: No, a future agreement to carry on business does not create a partnership, as held in
Henshaw v Roberts (1967).
Explanation: The court ruled that only actual business activity, not promises to collaborate,
forms a partnership. In Henshaw, a syndicate’s plan to form a partnership failed to materialize,
so no partnership existed. This aligns with the Partnership Act’s focus on “carrying on” (Section
2(1)), protecting parties from liability for unexecuted plans. For instance, agreeing to open a
shop later does not bind partners until trading begins. This clarity prevents premature legal
obligations, crucial for advising clients.

47. What does Section 3 of the Partnership Act provide?

Answer: Section 3 provides rules for determining partnership existence, including that joint
ownership or profit-sharing alone does not create a partnership, but profit receipt is prima facie
evidence.
 Explanation: These rules guide courts in assessing partnerships. Subsections clarify that co-
ownership (e.g., shared land) or gross returns (e.g., rent) do not suffice without business intent.
Profit-sharing suggests a partnership but requires control or agency, as in Festo Sendi. For
example, roommates sharing rental income are not partners unless running a business. This
framework ensures accurate classification, protecting parties from unintended liabilities while
enabling genuine partnerships.

48. Why is a partnership agreement important?

Answer: A partnership agreement clarifies partners’ rights, duties, and relationships, ensuring
smooth operations and legal enforceability, especially with third parties.
Explanation: Whether oral or written, the agreement defines terms like profit-sharing and
management, reducing disputes. It binds partners as agents (Section 5), affecting third-party
contracts. A deed strengthens court admissibility, as seen in Kafeero vs. Turyagenda. For
instance, a law firm’s agreement specifying case allocation prevents conflicts. Without one, the
Partnership Act’s defaults apply, which may not reflect partners’ intent, risking mismanagement
or litigation.

49. What happens if there’s no partnership deed?

Answer: Without a deed, the Partnership Act’s default provisions apply, and courts infer terms
from conduct, increasing dispute risks.
Explanation: The Act (e.g., Section 26) assumes equal profit-sharing and management rights
absent an agreement, which may not suit partners. In Dr. Okello, conduct proved a partnership,
but proving terms was harder without documentation. For example, unequal contributions may
lead to unfair outcomes under defaults. A deed avoids such uncertainties, ensuring tailored
governance. Non-written agreements rely on evidence like bank records, complicating legal
proceedings.

50. Who drafts the partnership deed?

Answer: The partners draft the partnership deed, often with legal assistance, to reflect their
mutual agreement.
Explanation: As a contract, the deed embodies partners’ consensus on terms like capital or
duties, as seen in the “Friends United” sample. Partners may hire advocates to ensure
compliance with the Partnership Act and clarity, especially for complex firms like law
partnerships. For instance, a poorly drafted deed risks omitting dissolution clauses, leading to
disputes. The process involves negotiation to balance interests, ensuring the deed is a true
reflection of intent, enforceable under common law.

51-60: Relationship and Duties of Partners

51. What is the nature of the relationship between partners?

Answer: The relationship is fiduciary, requiring trust, confidence, and the highest standard of
care, as defined in British and West Building Society v Mathew.
Explanation: Partners act for each other’s benefit, imposing duties like honesty and disclosure.
This fiduciary nature, rooted in equity, ensures partners prioritize the firm’s interests, as seen in
V Law. For example, a partner managing a law firm’s finances must act transparently. Breaching
 this trust, like hiding profits, triggers remedies like accounting, protecting the partnership’s
integrity. This principle underscores the mutual reliance central to partnerships, distinguishing
them from arm’s-length contracts.

52. What is the duty of utmost good faith?

Answer: Partners must act with utmost good faith, being honest and fully disclosing relevant
information, as held in V Law [1905] CH 140.
Explanation: This equitable duty, implied in the Partnership Act, requires transparency in
dealings, like disclosing business opportunities. In V Law, a partner’s failure to share transaction
details voided the sale, emphasizing accountability. For instance, a partner concealing a client
contract breaches this duty, risking legal action. Good faith fosters trust, ensuring partners
collaborate effectively. Without it, partnerships falter, as mutual reliance is undermined, making
this duty foundational.

53. What does Section 30 of the Partnership Act require?

Answer: Section 30 mandates partners to render true accounts and provide full information
about all partnership matters.
Explanation: This duty ensures transparency in financial and operational dealings, like sharing
revenue records. For example, a law firm partner must disclose case earnings to co-partners.
Non-compliance, as in Bentley vs. Craden, triggers accountability for profits. The section
protects partners from hidden dealings, maintaining trust. It also aids creditors by ensuring
accurate firm records, aligning with the fiduciary nature of partnerships and equitable principles
of fairness.

54. What happens if a partner makes secret profits?

Answer: A partner making secret profits must refund them to the firm, per Section 31 and
Bentley vs. Craden [1853].
Explanation: Secret profits, like buying cheap and reselling high to the firm, breach fiduciary
duty. In Bentley, the court ordered the partner to account for gains, protecting co-partners’
rights. For instance, a partner using firm contacts for personal gain must repay profits. This rule
deters self-interest, reinforcing trust. The firm can also seek equitable remedies, like
constructive trusts, ensuring fairness and compliance with the Partnership Act’s transparency
requirements.

55. Can a partner compete with the firm?

Answer: No, a partner must not compete with the firm without consent, accounting for any
profits made, per Section 32.
Explanation: Competition undermines the firm’s interests, breaching fiduciary duty. For
example, a law firm partner starting a rival practice must share earnings with the firm unless
agreed otherwise. Aas vs. Benham [1891] clarified that non-competing activities (e.g.,
shipbuilding by a ship broker) are permissible. This rule protects the firm’s viability, ensuring
partners prioritize collective goals. Consent exceptions allow flexibility, but unauthorized
competition risks legal and financial consequences.

56. What did the court hold in Aas vs. Benham (1891)?
Answer: In Aas vs. Benham [1891] 2 CH 244, the court held that a partner’s activity outside the
partnership’s scope (shipbuilding vs. ship broking) did not require accounting for profits.
 Explanation: The partner’s shipbuilding company was unrelated to the firm’s business, so
remuneration was personal. This distinguishes competing from non-competing activities,
protecting partners’ external ventures. For instance, a law firm partner directing a tech company
owes no duty to share tech profits. The case balances fiduciary obligations with individual
freedom, guiding partners on permissible side ventures under Section 32’s non-compete rule.

57. How must partnership property be used?

Answer: Partnership property must be held and applied exclusively for partnership purposes,
per Section 22 of the Partnership Act.
Explanation: Property, like office equipment or capital, belongs to the firm, not individuals, and
must serve business goals. For example, a law firm’s library cannot be used for personal gain.
Section 23 deems property bought with firm funds as partnership property, ensuring clarity.
Misuse, like leasing firm assets privately, breaches fiduciary duty, triggering accountability. This
rule protects the firm’s assets from personal exploitation, maintaining operational integrity and
creditor trust.

58. What is the liability of partners for firm debts?

Answer: Partners have unlimited liability, meaning their personal property can be used to
settle firm debts if partnership assets are insufficient.
Explanation: Unlike companies, partnerships lack separate legal status, so creditors can pursue
partners’ personal assets, like homes, as in Kendall vs. Hamilton. For example, a law firm’s
unpaid rent could lead to partners’ savings being seized. This unlimited exposure encourages
prudent management but risks financial ruin, distinguishing partnerships from limited liability
entities. Minors and new partners have exceptions, but general partners bear full responsibility,
underscoring the high stakes of partnership.

59. What case illustrates the duty not to compete?

Answer: Trimble vs. Goldberg [1906] AC 494 reinforces that partners must not engage in
competing businesses without consent, accounting for profits.
Explanation: The case upheld the fiduciary duty to prioritize the firm, aligning with Section 32. A
partner competing, like running a rival store, must share gains, as competition harms co-
partners’ interests. Unlike Aas vs. Benham, where activities were distinct, Trimble involved
direct rivalry. This principle ensures loyalty, preventing partners from undermining the firm’s
market position. Consent clauses offer flexibility, but unauthorized competition risks legal
remedies, protecting partnership unity.

60. What is the consequence of breaching fiduciary duties?

Answer: Breaching fiduciary duties, like making secret profits or competing, requires the partner
to account for profits or compensate the firm, potentially facing equitable remedies.
Explanation: Breaches, as in Bentley vs. Craden, trigger accountability to restore fairness. For
instance, hiding client fees demands repayment plus damages if losses occur. Equity may impose
constructive trusts or injunctions, as seen in V Law. The Partnership Act (Sections 30-32)
enforces these duties, ensuring trust. Consequences deter misconduct, protecting partners and
the firm’s viability, while reinforcing the high ethical standard required in fiduciary relationships.
61-70: Types of Partnerships

61. What is a general partnership?

Answer: A general partnership is a business where two or more individuals share all assets,
profits, and liabilities, with unlimited liability, per Section 2(1) of the Partnership Act.
Explanation: All partners are fully responsible for debts, as in Kendall vs. Hamilton, risking
personal assets. Unlike LLPs, no registration is required, and numbers are capped at 20 (Section
372, Companies Act). For example, a law firm where partners share case fees and debts equally
is a general partnership. This structure suits small, trust-based ventures but exposes partners to
high financial risk, distinguishing it from limited liability models.

62. What is a limited liability partnership (LLP)?

Answer: An LLP limits some partners’ liability to their capital contribution, with at least one
general partner bearing unlimited liability, per Section 47 of the Partnership Act.
Explanation: Section 47(3) caps limited partners’ exposure, unlike general partners who face full
risk (Section 47(2)). For instance, in “Friends United LLP,” the third partner’s liability is limited to
UGX 4 million. LLPs require registration (Section 48), ensuring transparency. This hybrid model
attracts investors wary of unlimited liability while maintaining partnership flexibility, ideal for
professional firms like accountants, balancing risk and collaboration.

63. How many partners can an LLP have?

Answer: An LLP can have up to 20 partners, including at least one general partner, as per
Section 47(2).
Explanation: The cap aligns with general partnerships (Section 372, Companies Act), ensuring
manageability. General partners bear unlimited liability, while limited partners are protected, as
in Section 47(3). For example, a law firm LLP may have 19 limited partners funding operations
and one general partner managing. This structure allows capital influx without exposing all to
full risk, but exceeding 20 requires company incorporation, maintaining regulatory boundaries.

64. What is mandatory for an LLP?

Answer: Registration with the Registrar of Documents is mandatory for an LLP, or it is treated as
a general partnership, per Section 48.
Explanation: Registration, under Section 50’s regulations, formalizes the LLP’s limited liability
status, protecting limited partners. Without it, all partners face unlimited liability, as in general
partnerships, risking personal assets. For instance, an unregistered LLP law firm loses its liability
cap, exposing all partners. This requirement ensures public notice and creditor protection,
balancing flexibility with accountability. Non-compliance undermines the LLP’s purpose, making
registration critical.

65. What is a professional partnership?

Answer: A professional partnership is formed by up to 50 professionals regulated by Ugandan
law, like advocates or accountants, per Section 2(2) of the Partnership Act.
Explanation: Section 1 defines professionals as those governed by statutes like the Advocates
Act. The higher cap (50 vs. 20) accommodates larger firms, like multi-partner law practices,
requiring specialized skills. For example, “All Solutions Advocates” with 30 partners qualifies if all
are enrolled advocates. This structure ensures competence and regulatory oversight, protecting
clients while allowing scale, distinct from general partnerships’ broader scope.
66. Who is an active partner?
Answer: An active partner participates in management and can bind the firm, with authority
under Section 5(1) of the Partnership Act.
Explanation: Active partners handle operations, like signing contracts, making them agents of
the firm. For instance, a law firm partner negotiating client deals binds co-partners. Their actions
in the ordinary course are enforceable, per Hamlyn vs. Houston, but require good faith. This
role contrasts with dormant partners, highlighting the division of labor in partnerships. Active
partners drive the firm’s success but bear full liability, balancing influence with responsibility.

67. What is a dormant partner?

Answer: A dormant partner takes no active part in management but remains liable as a partner
for firm debts.
Explanation: Also called silent partners, they contribute capital without operational roles, as
implied in Section 5’s agency focus on active partners. For example, a financier in a trading firm
shares profits and losses but avoids daily decisions. Despite non-involvement, they face
unlimited liability, risking personal assets. This role suits investors seeking returns without
management burdens, but their liability underscores the partnership’s collective risk structure.

68. What distinguishes an LLP from a general partnership?

Answer: An LLP limits some partners’ liability to their contribution, requires registration, and
has general partners with unlimited liability, unlike a general partnership where all partners
have unlimited liability and registration is optional (Sections 47-48).
Explanation: LLPs offer a hybrid model, protecting limited partners while general partners bear
full risk, as in Section 47(2)-(3). General partnerships, per Section 2(1), expose all to personal
liability without mandatory formalities. For instance, an LLP law firm shields investors, but a
general firm risks all partners’ assets equally. Registration ensures transparency in LLPs,
contrasting with general partnerships’ informality, guiding structure choice based on risk
tolerance.

69. Can a limited partner withdraw capital during the partnership?

Answer: No, a limited partner cannot withdraw capital during the partnership’s continuance,
per Section 47(4) of the Partnership Act.
Explanation: This restriction protects the firm’s financial stability and creditors, ensuring capital
remains committed. For example, a limited partner in an LLP law firm cannot reclaim their UGX 5
million investment mid-term, preserving operational funds. Withdrawal would undermine the
limited liability structure, risking reclassification as a general partnership. This rule balances
investor security with firm integrity, enforcing contractual commitment under the Partnership
Act.

70. What happens if an LLP fails to register?

Answer: If an LLP fails to register, it is deemed a general partnership, with all partners facing
unlimited liability, per Section 48.
Explanation: Registration formalizes the LLP’s status, limiting liability for some partners (Section
47(3)). Without it, the firm loses this protection, as creditors can pursue all partners’ personal
assets, as in general partnerships. For instance, an unregistered LLP law firm risks partners’
 homes for debts. This consequence emphasizes registration’s importance for legal and financial
clarity, protecting limited partners and ensuring compliance with statutory requirements.

71-80: Rights and Powers of Partners

71. What rights do partners have under Section 26?

Answer: Section 26 grants partners rights to management, indemnity, remuneration, and
interest, unless varied by agreement.
Explanation: These rights ensure equitable participation and protection. Management rights
(Section 26(e)) allow partners to engage in decisions, like case assignments in law firms.
Indemnity (Section 26(b)) covers losses from proper conduct, such as litigation costs.
Remuneration and interest apply unless agreed otherwise, balancing contributions. For
example, a partner advancing funds expects repayment with interest. Agreements can modify
these, as in Highly v Walker, offering flexibility but requiring consent, ensuring fairness in
partner relations.

72. Can a partner participate in management?

Answer: Yes, every partner may take part in management, unless otherwise agreed, per Section
26(e).
Explanation: This right reflects the partnership’s communal nature (Section 2(1)), allowing
partners to influence operations, like strategy in a trading firm. Highly v Walker held that
majority decisions bind in ordinary matters, but all have a say in admissions (Section 26(9)). For
instance, a law firm partner can vote on hiring associates. Excluding a partner requires clear
agreement, ensuring democratic governance while respecting individual contributions, a
cornerstone of partnership law.

73. What case addressed the right to management?

Answer: Highly v Walker (1910) 26 TLR held that ordinary matters, like admitting apprentices,
can be decided by a majority in good faith, binding the minority.
Explanation: Two partners’ decision to train an apprentice was upheld despite one’s objection,
as it was routine and made honestly. This clarifies that major changes (e.g., nature of business)
need unanimity, but daily operations do not. For example, a law firm’s majority can approve
office upgrades. The case balances majority rule with fiduciary duty, ensuring decisions serve the
firm’s interest, guiding partners on governance limits.

74. What is the right to indemnity?

Answer: The firm must indemnify partners for payments and liabilities incurred in the ordinary
and proper conduct of business, per Section 26(b).
Explanation: This protects partners from personal loss for legitimate actions, like paying firm
debts. For instance, a partner settling a law firm’s rent expects reimbursement unless agreed
otherwise. Indemnity ensures risk-sharing, encouraging active participation without fear of
financial ruin. Without this right, partners might hesitate to act, stalling operations. The clause’s
“proper conduct” limit prevents abuse, aligning with fiduciary duties to act in the firm’s interest.
75. Can partners admit new members without consent?
Answer: No, admitting new partners requires the consent of all existing partners, per Section
26(9).
Explanation: This rule protects partners’ interests, as new members affect profit shares and
liabilities. In Highly v Walker, unanimity was implied for significant changes like admissions. For
example, a law firm cannot add a partner without all agreeing, ensuring trust and alignment.
Without consent, the admission is void, preventing unilateral disruptions. This requirement
balances openness to growth with control, maintaining partnership harmony and mutual
commitment.

76. How does a partner bind the firm?

Answer: A partner, as an agent, binds the firm through acts in the ordinary course of business,
unless lacking authority and the third party knows this, per Section 5.
Explanation: Partners’ agency, as in Hamlyn vs. Houston, makes their contracts enforceable
against the firm. For instance, a partner signing a client retainer binds co-partners unless
restricted and known. This mutual agency facilitates transactions but risks liability for
unauthorized acts if third parties are unaware. The section ensures trust in dealings while
limiting abuse through authority checks, central to partnership operations and third-party
relations.

77. What is express authority in partnerships?

Answer: Express authority is clearly stated authority, orally or in writing, given to a partner to
act for the firm.
Explanation: This direct mandate, like a deed clause authorizing a partner to sign contracts,
binds the firm unequivocally. For example, a law firm partner expressly tasked with settling
debts commits the firm legally. Unlike implied authority, express authority is explicit, reducing
disputes over scope. It aligns with agency law, ensuring clarity in transactions, but requires
documentation for significant acts (e.g., land deals needing power of attorney), per common law
principles.

78. What is implied authority?

Answer: Implied authority allows a partner to do necessary acts to perform expressly
authorized tasks or follow market customs.
Explanation: If a partner is tasked with buying goods, they can negotiate prices or sign
agreements, as implied in Panorama Developments vs. Fidelis Furnishings. Customs, like trade
practices, also confer authority unless contradicting express instructions. For instance, a trading
firm partner can order stock under industry norms. This flexibility ensures operational efficiency
but risks overstepping if customs are unclear, requiring careful delineation in agreements to
avoid liability.

79. What is apparent authority?

Answer: Apparent authority is authority a partner appears to have due to the firm’s
representation, binding the firm if relied upon, per Rama Corporation vs. Proved Tin (1952).
Explanation: If the firm presents a partner as authorized (e.g., giving them firm titles), third
parties can rely on it, as in Edmund Schulter vs. Patel. For example, a partner presented as
managing a law firm binds it by signing contracts, even without actual authority, if the client
 trusts the representation. The firm is estopped from denying authority, protecting third parties
but risking liability for misrepresentations, emphasizing clear communication of roles.

80. Can a partner’s act outside their authority bind the firm?
Answer: No, an unauthorized act does not bind the firm if the partner lacks authority and the
third party knows or does not believe them to be a partner, per Section 5.
Explanation: This limit protects the firm from rogue actions, as in Attorney General vs. Silva,
where a false claim of authority failed. For instance, a law firm partner leasing firm property
without permission does not bind the firm if the lessee knows their limits. The knowledge
requirement ensures fairness, balancing third-party trust with firm control. Partners must clarify
authority to avoid disputes, reinforcing agency principles.

81-90: Registration and Dissolution

81. Is registration of a partnership mandatory?

Answer: No, registration of a partnership is not mandatory, but registering the deed has
evidential value, as per Kafeero vs. Turyagenda (1980) HCB 122.
Explanation: The Partnership Act lacks a registration requirement, allowing informal formation,
but registration under the Registration of Documents Act strengthens proof of terms, as Kafeero
noted. For example, a registered law firm deed clarifies profit shares in court. Non-registration
does not invalidate the partnership but complicates disputes, as conduct must be proven. This
flexibility suits small firms but encourages registration for legal certainty, protecting partners
and creditors.

82. What is the procedure for registering a business name?

Answer: The procedure involves drafting a deed, filing Form A (Business Names Registration
Rules, SI 109-1), making a statutory declaration, paying stamp duty (UGX 10,000), and
registering with the Registrar of Business Names.
Explanation: Form A details the name, nature, and partners’ particulars (Rule 5). The
declaration, sworn before a magistrate, verifies accuracy. Stamp duty complies with the Stamps
Act, and registration ensures legal recognition, as in Kafeero. For instance, “All Solutions
Advocates” registers to distinguish itself. This process, costing UGX 20,000 plus fees, protects
identity and creditors, streamlining business operations while meeting statutory obligations.

83. What fees are paid for registering a business name?

Answer: UGX 20,000 for registration and UGX 25,000 for name reservation, per the Business
Names Registration (Amendment) Rules, 2005.
Explanation: These fees, under SI 2005 No. 35, cover administrative costs for processing Form A
and reserving names online via URSB’s portal. Reservation ensures exclusivity for 30 days, while
registration grants a certificate (Rule 10). For example, a law firm pays UGX 45,000 total to
secure its name. These modest fees encourage compliance, ensuring transparency without
burdening small firms, aligning with the Business Names Registration Act’s goals.

84. What happens if particulars of a firm change?

Answer: Partners must notify the Registrar within 14 days using the prescribed form, per
 Section 7 of the Business Names Registration Act.
Explanation: Changes, like a new partner or address, require updating to maintain transparency,
as in Rule 7, SI 109-1. For instance, a law firm relocating must file a notice to avoid penalties
(Section 8). This ensures creditors and clients access accurate information, protecting trust. Non-
compliance risks fines, underscoring the Act’s emphasis on current records, a practical necessity
for dynamic partnerships.

85. How can a partnership be dissolved?

Answer: A partnership dissolves by expiration of its term, notice, death, bankruptcy, illegality,
or court order, per Sections 35-36 of the Partnership Act.
Explanation: Section 35 covers fixed-term endings or partner notices, while Section 36 includes
automatic dissolution (death, bankruptcy) or optional dissolution (charged shares). Illegality, like
banned activities, or court orders for incapacity or misconduct (Section 36(2)) also trigger
dissolution. For example, a law firm dissolves if a partner dies unless the deed provides
continuity. These mechanisms ensure orderly exits, protecting partners and creditors by
addressing diverse termination scenarios.

86. What is the procedure for court-ordered dissolution?

Answer: Apply via originating summons (O37r4, Civil Procedure Rules, SI 71-1) or chamber
summons (O30r11) to court, citing grounds like bankruptcy or misconduct.
Explanation: Courts dissolve partnerships when partners are bankrupt, insane, incapable, or
prejudicial, per Section 36. Originating summons suit formal applications, while chamber
summons handle urgent matters. For instance, a partner’s fraud may prompt a summons. The
process involves affidavits and hearings, ensuring fairness. Court orders protect partners’ rights
and creditors’ claims, providing a legal remedy when internal resolution fails, aligning with
equitable principles.

87. What notice is required for dissolution?

Answer: A public notice under Section 39, using the prescribed form (Regulation 8, Partnerships
Regulations, 2016), is required to inform third parties.
Explanation: The notice, signed by partners, announces dissolution, as in the “All Solutions
Advocates” sample, protecting creditors from further liabilities. Published within a reasonable
time, it ensures transparency, as non-notification risks continued partner liability. For example, a
trading firm’s notice in a gazette clarifies its end. This requirement balances partner freedom
with public interest, ensuring legal closure under the Partnership Act.

88. What happens to a partner’s liability after retirement?

Answer: A retired partner remains liable for debts incurred while a partner, unless discharged
by agreement, per Section 19.
Explanation: Retirement does not erase past obligations, as in Kendall vs. Hamilton, protecting
creditors. For instance, a law firm partner retiring remains liable for unpaid fees from their
tenure unless creditors agree otherwise. A novation agreement can release them, but without it,
personal assets are at risk. This rule ensures continuity in creditor trust while encouraging clear
exit terms, balancing fairness with partnership stability.

89. How is partnership property treated in dissolution?

Answer: Partnership property is applied exclusively for partnership purposes, like settling
 debts, then distributed per the agreement, per Section 22.
Explanation: Property, like firm assets, prioritizes creditors’ claims before partner distributions,
as in Exparte Heaton. For example, a law firm’s library is sold to pay debts, with residuals shared
per profit ratios. Section 25 prevents execution against property except by firm judgments,
protecting assets. This orderly process ensures fairness, aligning with fiduciary duties and
equitable principles to safeguard all stakeholders during dissolution.

90. What Act governs the registration of a partnership deed?

Answer: The Registration of Documents Act, Cap 291, governs deed registration with the
Registrar of Documents.
Explanation: Section 3 mandates a register for documents, with Section 5 requiring certified
copies for filing. A partnership deed, registered for UGX 10,000 (2005 Rules), gains evidential
weight, as in Kafeero. For instance, a law firm’s deed is filed to prove terms in disputes. The Act
ensures transparency and legal recognition, protecting partners and third parties, a key
procedural step despite the Partnership Act’s silence on registration.

91-100: Law Firms and Miscellaneous

91. Who can establish a law firm in Uganda?

Answer: Only enrolled advocates under the Advocates Act, Cap 295, can establish law firms,
per Sections 64 and 70.
Explanation: These sections prohibit unqualified persons from practicing or acting as agents,
ensuring professional competence. An advocate, per Section 1, must be on the Roll with a
practicing certificate (Section 16). For example, “All Solutions Advocates” requires enrolled
partners. This restriction protects clients from malpractice, maintaining public trust. The Law
Council’s oversight ensures compliance, aligning with the Act’s goal of regulating legal practice
for quality and ethics.

92. What regulates the name of a law firm?

Answer: The Business Names Registration Act, Cap 105, and Advocates (Use of Generic Names)
Regulations, 2006, regulate law firm names.
Explanation: The Act mandates name registration, while Regulation 5(3) requires Law Council
consent for generic names, defined as non-partner names (Regulation 2). Names must include
“advocates” and avoid misleading or symbolic terms (Regulations 3, 6). For instance, “All
Solutions Advocates” needs approval if generic. These rules ensure clarity and professionalism,
preventing confusion or unethical branding, aligning with the Advocates Act’s standards.

93. What are the requirements for a law firm’s chambers?

Answer: Chambers must have a desk, separate rooms for advocates and staff, computers,
reception, bookshelf, filing cabinet, reference books, sanitary facilities, and accounts, per
Regulation 5, Advocates (Inspection) Regulations, 2005.
Explanation: These standards ensure professionalism and functionality, as in Regulation 3’s
yearly inspection mandate. For example, a law firm needs the Revised Laws of Uganda for
research. Non-compliance risks closure (Regulation 5(6)), protecting clients. The requirements
 balance accessibility with quality, ensuring firms like “All Solutions Advocates” meet ethical and
operational benchmarks, reinforcing public confidence in legal services.

94. What is the fee for inspecting a law firm’s premises?

Answer: The fee is UGX 62,000, per the Advocates (Council Fees) Regulations, 2004.
Explanation: This fee covers the Law Council’s yearly inspection (Regulation 3), ensuring
chambers meet standards like equipment and hygiene (Regulation 5). For instance, “All
Solutions Advocates” pays to secure a certificate valid for one year (Regulation 6). The modest
fee encourages compliance without burdening firms, supporting the Advocates Act’s oversight.
Inspections uphold professionalism, protecting clients from substandard practices, a key
regulatory mechanism.

95. What is a generic name for a law firm?

Answer: A generic name is a name other than a partner’s name, requiring Law Council consent,
per Regulation 2, Advocates (Use of Generic Names) Regulations, 2006.
Explanation: Names like “All Solutions Advocates” are generic, needing written approval
(Regulation 5(3)) to ensure they are not misleading or symbolic (Regulations 3, 6). This prevents
confusion, as in Regulation 6’s clarity mandate. For example, “Justice Advocates” requires
consent to avoid implying specialty. The rule balances branding freedom with ethical standards,
aligning with the Business Names Registration Act’s transparency goals.

96. What distinguishes a partnership from a company?

Answer: A partnership lacks separate legal status and has unlimited liability, while a company
is a distinct entity with limited liability, per Salomon vs. Salomon (1896).
Explanation: Partnerships cannot sue or be sued independently, and partners’ personal assets
are at risk, unlike companies where shareholders are shielded (Salomon). Partnerships form
easily without registration, but companies require formalities (Companies Act). For instance, a
law firm partnership risks partners’ savings, but a company limits losses to shares. This
distinction guides structure choice, balancing simplicity against protection, with partnerships
suiting trust-based ventures.

97. What happens upon the death of a partner?

Answer: The partnership may dissolve automatically, especially in two-partner firms, unless the
deed provides otherwise, per Section 36(1) and Mcleod v Dowling (1927).
Explanation: Death triggers dissolution under Section 36 unless continuity is agreed, as in
Mcleod, where notice preceded death. A deed clause, like vesting interests in trust, ensures
survival, as in the “Friends United” sample. For example, a law firm with three partners may
continue if stipulated. Notification (Regulation 5) informs the public, protecting creditors. This
rule balances stability with flexibility, requiring clear terms to avoid disruption.

98. What is required to join the Law Development Centre?

Answer: A law degree from a recognized university in Uganda or a common law country,
accredited by the NCHE or Law Council, per the Advocates (Professional Requirements) Notice,
2007.
Explanation: Section 3 mandates a degree meeting NCHE standards (Section 4), like Makerere or
accredited foreign institutions (Section 5). Courses like Constitutional Law are required
(Schedule 1). For example, Nkumba graduates qualify if accredited, as in Pius Nuwagaba vs.
 LDC. This ensures competence for the Bar Course, aligning with the Advocates Act’s enrollment
criteria, preparing students for legal practice with rigorous academic grounding.

99. What best practices should a law firm adopt?

Answer: Compliance with laws, approved premises, record-keeping, ethical conduct,
transparent governance, and modern tools, per IBA Law Firm Governance Guidelines and
Advocates Regulations.
Explanation: Registering names, inspecting chambers (Regulation 5), and maintaining client files
ensure compliance. Ethical duties (Regulations 7-12) protect client trust, like diligent advice.
Transparent leadership and websites enhance professionalism, as in IBA’s diversity and
promotion policies. For instance, “All Solutions Advocates” needs a stocked library and clear
profit-sharing. These practices build reputation and efficiency, meeting contemporary standards
while adhering to the Advocates Act’s ethical mandates.

100. How does the Trade (Licensing) Act apply to partnerships?

Answer: The Trade (Licensing) Act, Cap 101, requires partnerships trading in goods to obtain a
trading license from the town clerk, per Section 7.
Explanation: Section 1 defines trade as selling goods, applicable to partnerships like retail firms.
Licenses, issued under Section 8 (e.g., by KCCA in Kampala), ensure regulatory oversight, with
fees per the 2017 Schedule. For example, a partnership selling clothes needs a license, unlike
exempt trades (Section 7(2)). This requirement protects consumers and ensures tax compliance,
balancing business freedom with public interest, a practical concern for trading partnerships.

Formation of a law firm.

1-10: Eligibility to Practice Law in Uganda

1. What are the legal requirements to practice law in Uganda under the Advocates Act?
Answer: To practice law in Uganda, under Section 13(8) of the Advocates Act, Cap 295, one
must:

o Be a Ugandan citizen or resident and hold a degree in law from a recognized university
in Uganda or a common law country approved by the Law Council.

o Obtain a Diploma in Legal Practice from the Law Development Centre (LDC).

o Apply to the Law Council for a Certificate of Eligibility and to the Chief Justice for
enrollment on the Roll of Advocates, proving they are a fit and proper person.

o Pay subscriptions to the Uganda Law Society (ULS) and East Africa Law Society (EALS).
Explanation: These requirements ensure only qualified and ethically sound individuals
practice law, safeguarding public trust. The law degree provides academic grounding,
the diploma ensures practical skills, and enrollment formalizes status. Subscriptions
maintain professional membership, enabling networking and compliance. For example,
 a Makerere law graduate must complete LDC’s Bar Course and secure enrollment to
practice in courts like the High Court (Section 16(3)).

2. Who is eligible to apply for a Certificate of Eligibility under Section 13(2)?

Answer: Per Section 13(2), any person eligible to be enrolled on the Roll of Advocates, who is a
fit and proper person, may apply to the Law Council for a Certificate of Eligibility.
Explanation: Eligibility includes holding a recognized law degree and LDC diploma (Section
13(8)). The “fit and proper” criterion assesses character, ensuring no criminal convictions or
disciplinary issues (Regulation 4(e), Advocates (Enrollment and Certification) Regulations). For
instance, an applicant with a pending fraud case may be denied. The Law Council verifies
qualifications and integrity, issuing the certificate to enable enrollment, a critical step to
practice.

3. What does Section 13(8) specify about foreign qualifications for practicing law?
Answer: Section 13(8)(ii) allows a person with a degree in law or legal qualification from a
university outside Uganda, recognized by the Law Council, or with five years’ practice in a
designated country, to practice, subject to additional study if required (Section 13(6)).
Explanation: This provision accommodates foreign-trained lawyers, like those from Kenya, but
ensures relevance to Ugandan law. The Law Council may mandate courses in subjects like
Constitutional Law (Section 13(6)). For example, a UK-trained lawyer must verify their degree’s
equivalence and possibly study Ugandan law, ensuring competence. This balances inclusivity
with local standards.

4. What is the role of the Chief Justice in advocate enrollment?

Answer: Under Section 16, the Chief Justice directs the Registrar to enter an applicant’s name
on the Roll of Advocates upon receiving a Certificate of Eligibility, unless cause (e.g., misconduct)
is shown, and issues a certificate of enrollment (Regulation 11).
Explanation: The Chief Justice acts as the final gatekeeper, ensuring only eligible candidates are
enrolled. The process involves a fee (unspecified in Section 16) and verification of fitness. For
instance, an applicant with a forged diploma would be rejected. This judicial oversight upholds
the profession’s integrity, formalizing an advocate’s right to practice (Section 16(3)).

5. What is the validity period of a Practicing Certificate (PC)?

Answer: Per Section 16(2), a Practicing Certificate is valid until 31st December of the year issued
and is renewable annually.
Explanation: The annual validity ensures advocates remain compliant with professional
standards, like ULS subscriptions (Regulation 15). For example, a PC issued on 1st July 2025
expires on 31st December 2025, requiring renewal by January 2026. Non-renewal bars practice
(Section 16(3)), maintaining accountability. This cycle aligns with regulatory oversight, ensuring
active advocates meet ongoing obligations.

6. What restrictions apply to new advocates’ right of audience?

Answer: Under Regulation 13, a newly enrolled advocate, resident or Ugandan, has a right of
audience only in Magistrates’ Courts for at least nine months, with their PC endorsed
accordingly.
Explanation: This restriction, per Section 16(4), ensures novices gain experience in lower courts
before handling complex High Court cases, protecting clients. For instance, a new advocate can
 represent clients in a Grade I Court but not the High Court until after nine months. The Law
Council’s regulation balances training with public interest, gradually integrating advocates into
full practice.

7. What fees are associated with issuing a Practicing Certificate?

Answer: Per the Third Schedule, Advocates (Enrollment and Certification) Regulations, the fee
for issuing a PC is UGX 20,000 for Ugandans, UGX 200,000 for advocates from reciprocal
countries (e.g., Kenya), and UGX 400,000 for others. Renewal is UGX 20,000.
Explanation: These fees fund regulatory processes, varying by applicant type to reflect
reciprocity agreements. For example, a Tanzanian advocate pays less due to EAC ties. Non-
payment prevents PC issuance (Regulation 12), barring practice. The tiered structure balances
accessibility with administrative costs, ensuring fairness across jurisdictions.

8. What happens if an advocate contravenes Section 16(4) regulations?

Answer: Section 16(5) makes it an offence to contravene regulations under Section 16(4), like
practicing in unauthorized courts during the restricted period, potentially leading to penalties or
disciplinary action.
Explanation: This ensures compliance with audience restrictions (Regulation 13). For instance, a
new advocate appearing in the High Court within nine months risks fines or PC revocation. The
Law Council enforces this via disciplinary committees, upholding court hierarchy and client
protection. The offence provision deters premature practice, maintaining professional
standards.

9. What is required in an application for a Certificate of Eligibility?

Answer: Under Regulation 4, the application must state the applicant’s name, address,
qualifications, date/place of birth, residence period (if non-Ugandan), disciplinary/criminal
status, and bankruptcy status, concluding with a prayer for the certificate, supported by an
affidavit and testimonials from two advocates (Regulation 5).
Explanation: These details verify eligibility and integrity. For example, a Kenyan applicant must
disclose their Nairobi practice duration. Testimonials confirm character, as seen in Regulation
5(c). The affidavit ensures truthfulness, and non-disclosure (e.g., a pending case) risks rejection,
ensuring only qualified, ethical candidates advance to enrollment.

10. How is an application for enrollment advertised?

Answer: Per Regulation 9, an enrollment application is advertised in the Uganda Gazette using
Form 3 of the Second Schedule, notifying the public of the petition to the Chief Justice.
Explanation: Advertisement promotes transparency, allowing objections (e.g., unreported
misconduct). For instance, Babirye Nakiyaga’s petition in Form 3 invites scrutiny. The Gazette’s
wide reach ensures stakeholders, like ULS, can verify claims, aligning with Section 13(7)’s
publicity mandate. This step protects the profession by inviting public accountability before
enrollment.

11-20: Admission to the Bar Course

11. What is the Post-Graduate Bar Course under the 2007 Notice?
Answer: Per Paragraph 2, Advocates (Professional Requirements) Notice, 2007, the Bar Course
is a study program leading to a Diploma in Legal Practice awarded by the Law Development
Centre or another approved institution.
Explanation: The course equips law graduates with practical skills, like drafting and advocacy,
essential for practice. LDC’s monopoly ensures standardized training, though the Law Council
can approve alternatives. For example, a Makerere graduate attends LDC for nine months to
qualify for enrollment. This requirement bridges academic and professional law, ensuring
competence.

12. Who is eligible to join the Bar Course under Paragraph 3(a)?
Answer: A person is eligible if they hold a degree in law from a university in Uganda or a
recognized common law country institution, approved by the Law Council (Paragraph 3(a)).
Explanation: This ensures academic grounding in common law principles. For instance, degrees
from Makerere or Nairobi are accepted, but a French law degree may not be unless equivalent.
The Law Council’s approval verifies quality (Paragraph 5(1)), protecting standards. Citizenship is
irrelevant, broadening access while maintaining rigor, as seen in cross-border EAC applications.

13. What additional requirements apply to foreign law degrees?

Answer: Per Paragraph 5(1), a foreign degree must come from a university meeting standards
in Paragraph 4(b), and Paragraph 6 may require completing courses in Schedule 1 (e.g.,
Constitutional Law) at an approved Ugandan institution.
Explanation: This ensures foreign graduates understand Ugandan law. For example, a Kenyan
lawyer may study Family Law at UCU if their degree lacks it. The Law Council enforces
equivalence, preventing unqualified practice. Schedule 1’s core subjects align training with local
needs, balancing global mobility with domestic competence.

14. What is the entry examination for the Bar Course?

Answer: Per Paragraph 3, 2010 Amendment, the entry exam, oral or written, is approved and
supervised by the Law Council, conducted within 30 days before the Bar Course, testing
knowledge, aptitude, and professional values.
Explanation: The exam filters candidates, ensuring readiness. For instance, a test on Criminal
Procedure assesses academic retention, while value-based questions gauge ethics. Conducted
close to the course start, it ensures current knowledge. Passing is mandatory (Paragraph 2,
2010), maintaining high entry standards for LDC’s rigorous program.

15. What subjects are prescribed in Schedule 1 of the 2007 Notice?

Answer: Schedule 1 includes core subjects like Constitutional Law, Criminal Law, Civil
Procedure, Family Law, and others, critical for legal practice, which foreign applicants may need
to study (Paragraph 6).
Explanation: These subjects cover Uganda’s legal framework, ensuring graduates are practice-
ready. For example, a UK graduate lacking Land Law must study it at Makerere. The Law
Council’s oversight ensures relevance, preventing gaps in knowledge that could harm clients.
This requirement standardizes training across jurisdictions.

16. What happens if a candidate lacks Schedule 1 courses?

Answer: Per Paragraph 6, they must undertake study in those courses at a university or
 approved institution in Uganda before Bar Course admission.
Explanation: This bridges gaps in foreign curricula. For instance, an Indian graduate without
Evidence Law studies it at UCU, ensuring familiarity with Ugandan rules. The Law Council verifies
completion, protecting professional quality. This step, while time-consuming, ensures all
advocates meet uniform standards, critical for court practice.

17. How does the Law Council approve institutions for the Bar Course?
Answer: Per Paragraph 2, the Law Council may approve institutions besides LDC to conduct the
Bar Course, based on their ability to deliver a Diploma in Legal Practice.
Explanation: Approval depends on curriculum, faculty, and facilities meeting LDC’s standards.
For example, a private university like UCU could apply, but none are currently approved, leaving
LDC exclusive. This oversight ensures consistency, preventing substandard training. The Law
Council’s discretion maintains quality control, vital for producing competent advocates.

18. What is the purpose of the Bar Course entry exam’s timing?
Answer: Per Paragraph 3, 2010 Amendment, conducting the exam within 30 days before the
Bar Course ensures candidates’ knowledge and aptitude are current and relevant.
Explanation: Proximity to the course start minimizes knowledge decay. For instance, testing Civil
Procedure in July for an August start confirms readiness. The Law Council’s supervision ensures
fairness, filtering unprepared candidates. This timing aligns academic preparation with practical
training, enhancing Bar Course success rates.

19. How does the 2010 Amendment enhance Bar Course eligibility?
Answer: The 2010 Amendment (Paragraph 2) adds an entry examination, ensuring candidates
demonstrate knowledge, aptitude, and professional values, broadening assessment beyond
degrees.
Explanation: Previously, only degrees qualified candidates. The exam tests practical readiness,
like drafting skills, and ethics, like client confidentiality. For example, a brilliant graduate failing
the ethics section is excluded, protecting the profession. This holistic approach ensures only
well-rounded candidates join LDC, elevating advocate quality.

20. What values are tested in the Bar Course entry exam?
Answer: Per Paragraph 3, 2010 Amendment, the exam tests values the applicant attaches to
the legal profession, such as integrity, diligence, and client welfare.
Explanation: Questions may probe ethical scenarios, like handling conflicts of interest. For
instance, valuing client trust over profit demonstrates fitness. The Law Council seeks advocates
who uphold justice, as these values shape courtroom conduct. Testing values ensures graduates
embody professionalism, critical for public confidence in the legal system.

21-30: Formation of a Law Firm

21. What are the key requirements for forming a law firm in Uganda?
Answer: To form a law firm:

o All lawyers must hold a valid Practicing Certificate (Section 16).

 o Choose and register a business name with the Registrar of Business Names (Business
Names Registration Act).

o Draft and register a partnership deed (optional but recommended).

o Apply to Uganda Law Society for premises inspection.

o Register as a VAT payer and clear taxes with URA and NSSF.

o Obtain receipts for ULS and EALS subscriptions.

o Limit partners to 20 (Partnership Act, Cap 110).

Explanation: These steps ensure compliance and professionalism. The PC confirms
eligibility, while name registration prevents conflicts (e.g., “H7 Law Chambers”). The
deed clarifies terms, and inspection verifies facilities (Regulation 5). Tax compliance and
subscriptions maintain legal and professional standing. The 20-partner cap aligns with
partnership law, ensuring manageability, as seen in general partnerships.

22. Why is a Practicing Certificate mandatory for law firm partners?

Answer: Per Section 16(1), only advocates with a valid PC can practice law, including forming a
firm, ensuring competence and accountability.
Explanation: The PC, issued annually, verifies enrollment and compliance (Regulation 12).
Without it, partners cannot represent clients (Section 16(3)), rendering the firm non-functional.
For example, a lapsed PC bars a partner from court, risking client losses. This requirement
upholds standards, protecting the public and profession from unqualified practitioners.

23. What is the process for registering a law firm’s business name?
Answer: Choose a name, apply to the Registrar of Business Names with Form A (Business
Names Registration Act), include particulars (e.g., partners’ names, address), pay UGX 20,000,
and submit a statutory declaration verifying details.
Explanation: The process, per Section 4, ensures uniqueness, avoiding confusion (e.g., reserving
“H7 Advocates”). Form A details comply with Section 6, and the declaration prevents fraud.
Registration grants a certificate, enabling legal operations. Non-compliance risks fines (Section
8), emphasizing transparency in business identity.

24. What is the role of the partnership deed in forming a law firm?
Answer: The partnership deed outlines partners’ rights, duties, and terms (e.g., profit-sharing,
management), providing legal clarity, though not mandatory (Partnership Act, Cap 110).
Explanation: The deed, like “Kool Restaurant’s,” specifies contributions (e.g., 60:40) and roles,
reducing disputes. Registration with the Registrar of Documents adds evidential weight (Kafeero
vs. Turyagenda). Without it, default Partnership Act rules apply, which may not suit partners. For
a law firm, it ensures smooth operations, critical for client trust and financial management.

25. Why must a law firm’s premises be inspected by ULS?

Answer: Per the Advocates (Inspection and Approval of Chambers) Regulations, 2005, ULS
inspects premises to ensure they meet professional standards (Regulation 5), protecting clients
and the profession.
Explanation: Inspection verifies facilities like desks, books, and sanitation, as in Regulation 5(a)-
 (i). For example, “H7 Law Chambers” needs a Revised Laws set. Approval grants a one-year
certificate (Regulation 6), ensuring a conducive environment. Non-compliant firms risk closure
(Regulation 5(6)), maintaining public confidence in legal services.

26. What tax obligations must a law firm fulfill upon formation?
Answer: Register as a VAT payer with URA if turnover exceeds the threshold, clear income
taxes, and contribute to NSSF for employees, per relevant tax laws.
Explanation: VAT registration, under the VAT Act, applies if services exceed UGX 150 million
annually, affecting billing (e.g., 18% on fees). Income tax ensures compliance, and NSSF covers
staff welfare. For instance, “H7 Advocates” registers to avoid penalties, ensuring legal
operations. These obligations balance fiscal responsibility with professional duties, critical for
firm sustainability.

27. What is the significance of the 20-partner limit for law firms?
Answer: The Partnership Act, Cap 110 (Section 372, Companies Act reference), limits partners
to 20 to distinguish partnerships from companies, ensuring manageability and personal liability.
Explanation: Beyond 20, firms must incorporate, gaining separate legal status (Salomon vs.
Salomon). For law firms, this cap suits small, trust-based practices, like a five-partner firm.
Exceeding it risks reclassification, altering liability. This rule balances flexibility with regulatory
control, guiding firm structure choices.

28. How does a law firm obtain approval for a generic name?
Answer: Per Regulation 5, Advocates (Use of Generic Names) Regulations, 2006, apply to the
Law Council for written consent before registering the name with the Registrar General,
ensuring it complies with naming rules (Regulation 3).
Explanation: Generic names, like “H7 Advocates,” need approval to avoid misleading terms
(Regulation 3(5)). The application (e.g., 8th January 2021 letter) confirms compliance. Rejection
occurs for sufficient cause, like political connotations. This ensures professionalism, protecting
clients from deceptive branding, as seen in Regulation 3’s transparency mandates.

29. What are the requirements for a law firm’s letterhead?

Answer: Per Regulation 3, 2006 Regulations, the letterhead must include partners’ names and
qualifications, or reference where they are found, and the word “Advocates” for generic names.
Explanation: This promotes transparency, as in Regulation 3(2). For example, “H7 Advocates”
lists partners or notes their details are at the office. Non-compliance risks disapproval
(Regulation 5(6)), as clients rely on clear identification. The rule prevents anonymity, ensuring
accountability in client dealings, critical for trust.

30. What happens if a law firm’s chambers fail inspection?

Answer: Per Regulation 5(6), the Law Council may refuse approval and order closure until the
chambers meet standards, like having a desk or law books.
Explanation: Failure, like lacking a filing cabinet, signals unprofessionalism, risking client harm.
Closure compels compliance, as seen in Regulation 7’s revocation grounds. For instance, “H7
Advocates” must acquire a Revised Laws set to reopen. This enforcement upholds standards,
ensuring firms provide quality services, aligning with public interest.
31-40: Keeping of Different Accounts

31. What types of accounts must a law firm maintain?

Answer: A law firm must keep a Client’s Account and a Trust Bank Account, per the Advocates
Act, Cap 267.
Explanation: The Client’s Account holds client funds, like settlement payments, while the Trust
Account manages funds held as trustee, like estate assets. These accounts, mandated by Section
16, ensure financial integrity, preventing misuse. For example, “H7 Advocates” deposits client
fees separately, complying with ethical standards. Proper accounting protects clients and
maintains professional trust, critical for practice.

32. What is a Client’s Account under the Advocates Act?

Answer: Per Section 16, Cap 267, it is a current or deposit account at a bank in the advocate’s
name, titled with “Client,” holding funds for clients, debts to the advocate, or drawn on client
authority.
Explanation: This segregates client money, like litigation costs, from firm funds, ensuring
transparency. For instance, a client’s UGX 1 million for court fees is deposited here, not mixed
with profits. Misuse risks disciplinary action, as the account upholds fiduciary duty, protecting
clients from financial mismanagement, a core ethical obligation.

33. What funds are deposited in a Trust Bank Account?

Answer: The Trust Bank Account holds money received or held in trust by an advocate as a
trustee, per Cap 267.
Explanation: This includes funds like estate distributions or minors’ settlements. For example,
“H7 Advocates” managing a deceased client’s estate deposits proceeds here, ensuring they are
used per trust terms. Segregation prevents personal use, aligning with fiduciary duties. Breaches
trigger penalties, reinforcing client protection and professional accountability.

34. Why is it important to separate client and firm funds?

Answer: Separation, mandated by Cap 267, prevents misappropriation, ensures transparency,
and upholds fiduciary duty, protecting clients and the advocate’s reputation.
Explanation: Mixing funds risks using client money for firm expenses, violating ethics. For
instance, depositing a client’s UGX 500,000 settlement in the firm’s account could lead to
misuse, triggering Law Council sanctions. Clear accounts, like a Client’s Account, ensure
traceability, maintaining trust and compliance with professional standards.

35. What are the consequences of mismanaging a Client’s Account?

Answer: Mismanagement, like using client funds for personal expenses, breaches Cap 267 and
risks disciplinary action, PC revocation, or criminal charges for theft.
Explanation: The Law Council investigates complaints, as seen in ethical guidelines. For example,
“H7 Advocates” withdrawing client fees without authority faces suspension. This strict oversight
deters financial misconduct, protecting clients and upholding the profession’s integrity, critical
for public confidence.

36. How does a law firm ensure proper accounting practices?

Answer: Maintain books of accounts, conduct annual audits, use separate Client and Trust
Accounts, and comply with Regulation 5(i) requiring accounting records.
 Explanation: Audits, like “Kool Restaurant’s” yearly balance sheets, verify accuracy. For a law
firm, software tracks client funds, ensuring compliance. For instance, “H7 Advocates” reconciles
accounts monthly, preventing errors. These practices align with fiduciary duties, ensuring
transparency and client protection, mandatory for operational legitimacy.

37. What role does the Revised Laws of Uganda play in accounting?
Answer: Per Regulation 5(g), a law firm must have the Revised Laws of Uganda for reference,
indirectly supporting accounting by providing legal standards for compliance.
Explanation: The set includes tax and partnership laws, guiding proper account management.
For example, “H7 Advocates” consults the Advocates Act for Client Account rules. Access
ensures adherence to regulations, like VAT filing, enhancing financial integrity. This requirement
underscores the firm’s legal preparedness, vital for accounting accuracy.

38. Can a law firm operate without a Client’s Account?

Answer: No, a Client’s Account is mandatory under Cap 267 for holding client funds, ensuring
ethical practice and compliance.
Explanation: Without it, firms risk mixing funds, violating fiduciary duty. For instance, “H7
Advocates” receiving UGX 2 million for a client must deposit it separately, or face sanctions. The
account’s absence signals unprofessionalism, potentially leading to closure (Regulation 5(6)).
This requirement protects clients, reinforcing trust in legal services.

39. How are Client Account funds authorized for withdrawal?

Answer: Funds are withdrawn on client authority, like written instructions, or for debts due to
the advocate, per Cap 267.
Explanation: Authorization ensures funds serve intended purposes. For example, “H7
Advocates” withdraws UGX 100,000 for court fees only with client consent. Unauthorized
withdrawals breach trust, risking penalties. This rule safeguards client assets, aligning with
ethical standards and preventing misuse, a cornerstone of financial management.

40. What is the purpose of a Trust Bank Account in a law firm?

Answer: The Trust Bank Account holds funds an advocate manages as a trustee, ensuring they
are used per trust terms, per Cap 267.
Explanation: It protects assets like inheritance funds from personal use. For instance, “H7
Advocates” holding UGX 5 million for a minor’s trust keeps it separate, complying with fiduciary
duty. Misuse triggers legal action, as the account ensures accountability, critical for estates or
vulnerable clients, upholding professional ethics.

41-50: Miscellaneous (Partnership Deed, Generic Names, and Practical Applications)

41. What key clauses are included in a partnership deed for a law firm?
Answer: Clauses include firm name, objectives, place of business, commencement date, capital
contributions, profit/loss sharing, management, banking, retirement/death, new partners,
and accounts, as in the “Kool Restaurant” sample (Partnership Act, Cap 110).
Explanation: These terms, like 60:40 profit splits, clarify operations. For “H7 Advocates,” clauses
ensure equal case-sharing or audit schedules, reducing disputes. The deed, though optional,
 aligns with Section 26’s defaults, tailoring governance. Registration enhances enforceability,
critical for multi-partner firms.

42. How does a law firm apply for chambers inspection?

Answer: Per Regulation 4, 2005 Regulations, apply to the Law Council Secretary at least two
months before the previous certificate’s expiry, submitting fees (Regulation 8) and confirming
Regulation 5 compliance.
Explanation: The application, like “H7 Advocates’” letter, verifies facilities (e.g., desks, books).
Timely submission avoids penalties (Regulation 9). For example, applying by October for a
December expiry ensures continuity. Inspection upholds standards, ensuring client-friendly
premises, a regulatory priority.

43. What are the penalties for late chamber inspection applications?
Answer: Per Regulation 9, late applications (after 31st December) incur penalties prescribed in
the Advocates (Fees) Regulations, 2004, potentially delaying approval.
Explanation: Delays, like submitting in January, disrupt operations, as unapproved chambers
cannot practice (Regulation 5(6)). For instance, “H7 Advocates” risks closure without timely
filing. Penalties incentivize compliance, ensuring annual inspections maintain professional
environments, protecting clients and the profession.

44. Why must a generic name include “Advocates”?

Answer: Per Regulation 3(1), 2006 Regulations, “Advocates” clarifies the firm’s legal practice,
preventing confusion with other businesses.
Explanation: This distinguishes firms like “H7 Advocates” from consultancies, aiding clients.
Non-compliance risks rejection (Regulation 5). For example, “H7 Law” without “Advocates”
misleads, violating transparency. The rule ensures clear branding, aligning with professional
identity and public trust, critical for regulation.

45. What happens if a law firm changes its name to a generic one?
Answer: Per Regulation 4, the former name must appear on the letterhead and nameplate for
three years to maintain transparency.
Explanation: This prevents client confusion. For instance, “H7 Advocates,” previously “Sui
Generis,” lists both names until 2024 if changed in 2021. The rule ensures continuity, as clients
associate services with the old name, protecting trust. Non-compliance risks disapproval,
emphasizing regulatory oversight.

46. How does a law firm ensure compliance with Regulation 5 standards?
Answer: Equip chambers with a desk, separate rooms, computer/typewriter, reception,
bookshelf, filing cabinet, Revised Laws, sanitary facilities, and accounts, per Regulation 5, 2005
Regulations.
Explanation: These, like “H7 Advocates’” library, ensure professionalism. Regular maintenance
and audits meet standards, avoiding closure (Regulation 5(6)). For example, installing a toilet
addresses sanitation. Compliance creates a client-friendly environment, upholding the
profession’s reputation, a regulatory must.

47. What is the fee for chambers inspection?

Answer: Per Regulation 8, the fee is prescribed in the Advocates (Fees) Regulations, 2004,
 typically UGX 62,000 (textbook context).
Explanation: This covers inspection costs, ensuring facilities like “H7 Advocates’” meet
standards. Payment with the application (Regulation 4) secures a one-year certificate
(Regulation 6). Non-payment delays approval, risking closure. The fee balances affordability with
regulatory needs, maintaining professional oversight.

48. What are the grounds for revoking a chambers approval certificate?
Answer: Per Regulation 7, grounds include change of premises, firm name, partnership,
partner’s disbarment, using a ceased partner’s name, or Law Council necessity.
Explanation: Changes, like “H7 Advocates” relocating, require re-inspection. Disbarment, as in a
fraud conviction, voids approval, protecting clients. Revocation ensures ongoing compliance, as
unapproved chambers cannot operate (Regulation 5(6)). This safeguards standards, aligning
with public interest.

49. How does a profit and loss sharing agreement differ from a partnership?
Answer: A profit and loss sharing agreement, like the textbook’s sample, shares profits (e.g.,
10%) without making the associate a partner, who cannot bind the firm, unlike a partnership
where partners have mutual agency (Section 5, Partnership Act).
Explanation: The associate, like Edward Mukuutana, is a landlord sharing profits, not a partner
with liability. Partnerships involve joint management and unlimited liability. For “H7 Advocates,”
this distinguishes leasing arrangements from firm membership, clarifying roles and protecting
partners from external claims.

50. What professional fees apply to non-contentious matters in a law firm?

Answer: Per Regulation 14, Advocates (Remuneration) Regulations, fees include: UGX
10,000/folio for drafting deeds, UGX 10,000/15 minutes for attendances, UGX 300,000/day for
journeys, UGX 50,000/hour for time, and UGX 65,000 minimum for opinions.
Explanation: These scale fees ensure fair billing. For example, “H7 Advocates” charges UGX
20,000 for a two-folio affidavit. The folio definition (100 words) standardizes costs (Regulation
3). Compliance avoids overcharging disputes, maintaining client trust and professional ethics,
critical for practice.

FORMATION OF A COMPANY

Below is a list of 30 possible oral questions that you may be asked during your exam preparation for the
subject of Corporate and Commercial Practice at the Law Development Centre, based on the provided
textbook content under Topic Two: Formation of Companies. Each question is followed by a detailed
and accurate answer with explanations to help you understand the concepts thoroughly. The answers
incorporate relevant provisions from the Companies Act, case law, and other applicable laws as outlined
in the content.

1. What is the primary legislation governing the formation of companies in Uganda?

Answer:
The primary legislation governing the formation of companies in Uganda is the Companies Act, Cap 106.
This Act provides the legal framework for the incorporation, management, and dissolution of
companies. It is supplemented by the Companies (General) Regulations SI 110-1, Companies (Fees)
Rules SI 110-3 (as amended by SI 57/2005), and the Companies (High Court) (Fees) Rules SI 110-4.
Additionally, other laws like the Investment Code Act, Cap 92, Stamps Act, Cap 342 (as amended by Act
12/2005), and the Uganda Registration Services Bureau Act, Cap 210 may apply depending on the
context.

Explanation: The Companies Act is the cornerstone of company law in Uganda, outlining the
requirements for forming a company, including capacity, types of companies, and necessary
documentation. The supplementary regulations and rules provide procedural and fee-related details,
ensuring compliance with statutory requirements.

2. Who has the capacity to form a company under the Companies Act?

Answer:
Under the Companies Act, Cap 106, any person with legal capacity can form a company, provided they
meet the statutory requirements. This includes individuals who are at least 18 years old, of sound mind,
and not disqualified under any law (e.g., undischarged bankrupts). A minimum of one person is required
to form a private company, and at least seven persons are required for a public company, as per the Act.
Additionally, corporate entities can also be subscribers to the memorandum of a company.

Explanation: The Companies Act does not impose stringent restrictions on who can form a company,
ensuring flexibility. However, the requirement for a minimum number of subscribers ensures that public
companies have broader participation, while private companies can be formed by a single individual or
entity.

3. What types of companies can be formed under the Companies Act in Uganda?

Answer:
The Companies Act, Cap 106 allows for the formation of the following types of companies:

1. Private Company Limited by Shares: A company where the liability of members is limited to the
amount unpaid on their shares, with a maximum of 100 members (excluding employees), and
restrictions on share transfers.

2. Public Company Limited by Shares: A company with no limit on the number of members, whose
shares are freely transferable, and which may invite public subscriptions.

3. Company Limited by Guarantee: A company where members’ liability is limited to the amount
they undertake to contribute in the event of winding up, typically used for non-profit
organizations.

4. Unlimited Company: A company where members have unlimited liability for the company’s
debts, though this is rare.
Explanation: These categories cater to different business needs. Private companies are suitable for
small, closely-held businesses, while public companies are designed for larger enterprises seeking public
investment. Companies limited by guarantee are ideal for charitable or non-profit purposes, as seen in
cases like Sheikh Ali Ssenyonga v Sheikh Hussein Rajab Kakooza (1992-1993) HCB 93, where the
Uganda Muslim Supreme Council was incorporated as an unlimited company without share capital.

4. What is the significance of the Memorandum of Association in the formation of a company?

Answer:
The Memorandum of Association is a fundamental document required under the Companies Act, Cap
106 for the incorporation of a company. It defines the company’s constitution and scope of operations,
including:

 Name of the company (with “Limited” or “Ltd” for limited liability companies).

 Objects clause, outlining the company’s purpose and permissible activities.

 Liability clause, stating whether members’ liability is limited by shares or guarantee.

 Capital clause, specifying the authorized share capital and division into shares.

 Association clause, declaring the subscribers’ intention to form the company.

It must be signed by the subscribers (at least one for a private company, seven for a public company)
and registered with the Uganda Registration Services Bureau (URSB).

Explanation: The Memorandum serves as the company’s external charter, binding it to operate within
its stated objects. As seen in Salomon v Salomon (1897) AC 22, once registered, the Memorandum
creates a distinct legal entity capable of exercising all corporate functions, separate from its subscribers.

5. What is the role of the Articles of Association in a company’s formation?

Answer:
The Articles of Association is a mandatory document under the Companies Act, Cap 106, which governs
the internal management and operations of a company. It includes rules on:

 Appointment and powers of directors.

 Conduct of meetings (general and board meetings).

 Rights and obligations of shareholders.

 Dividend distribution and share transfers.

The Articles must comply with the Companies Act and be registered alongside the Memorandum of
Association during incorporation. If not provided, the default Articles in Table A of the Act apply to
companies limited by shares.
Explanation: The Articles act as a contract between the company and its members, ensuring smooth
governance. They complement the Memorandum by detailing operational procedures, as seen in cases
like Sheikh Ali Ssenyonga, where the Articles defined the governance structure of the Uganda Muslim
Supreme Council.

6. What is the purpose of the Application for Reservation of Company Name?

Answer:
The Application for Reservation of Company Name is a preliminary step in company formation under
the Companies Act, Cap 106. It involves submitting a proposed company name to the Uganda
Registration Services Bureau (URSB) to ensure it is unique, not misleading, and not prohibited under
the Act (e.g., names suggesting government affiliation). Upon approval, the name is reserved for a
specified period (usually 30 days), allowing the applicants to proceed with incorporation.

Explanation: Reserving a name prevents conflicts with existing companies and ensures compliance with
statutory naming requirements. A distinct name is critical for the company’s identity, as it forms part of
the Memorandum of Association.

7. What is the Declaration of Compliance (Form A2), and why is it required?

Answer:
The Declaration of Compliance (Form A2) is a statutory document required under the Companies Act,
Cap 106 during company incorporation. It is a sworn statement by the applicant (usually a promoter or
advocate) confirming that all requirements of the Act for incorporation have been met, including:

 Proper completion of the Memorandum and Articles of Association.

 Payment of necessary fees.

 Compliance with name reservation and other formalities.

It must be signed before a commissioner for oaths or notary public and submitted to the URSB.

Explanation: The Declaration ensures accountability and verifies that the incorporation process adheres
to legal standards, protecting stakeholders and the public from fraudulent registrations.

8. What is the Statement of Nominal Capital (Form A1), and what does it include?

Answer:
The Statement of Nominal Capital (Form A1) is a document required under the Companies Act, Cap 106
for companies limited by shares. It specifies:

 The total nominal (authorized) capital of the company.

 The number of shares and their nominal value.

  Details of the subscribers and the shares they undertake to take.

It is submitted alongside the Memorandum and Articles during incorporation.

Explanation: The Statement of Nominal Capital provides transparency about the company’s share
structure, enabling stakeholders to understand its financial foundation. It aligns with the capital clause
in the Memorandum, as highlighted in Salomon v Salomon, where the company’s capital structure was
clearly defined.

9. Can a company enter into contracts before its incorporation? Explain with reference to case law.

Answer:
A company cannot enter into contracts before its incorporation because it lacks legal existence until
registered under the Companies Act, Cap 106. This principle is established in Kelner v Baxter (1866) LR 2
CP 174, where the court held that a contract signed on behalf of a non-existent company does not bind
the company but holds the signatories personally liable. The defendants, acting as agents for a proposed
company, were liable because no company existed at the time of the contract. Similarly, in Ngaremtoni
Estates Ltd v Commissioner of Income Tax (1969) ALR Comm. 186, the court ruled that a promoter has
no right of indemnity against the company for pre-incorporation obligations, and the company cannot
ratify such agreements.

Explanation: Pre-incorporation contracts are void as against the company because it is not a legal entity
until incorporation. Promoters must enter into fresh contracts post-incorporation or bear personal
liability, as the company cannot assume obligations from a time when it did not exist.

10. What is the legal effect of a company’s incorporation under the Companies Act?

Answer:
Upon incorporation under the Companies Act, Cap 106, a company becomes a separate legal entity,
distinct from its shareholders and directors, as established in Salomon v Salomon (1897) AC 22. It
acquires the following attributes:

 Perpetual succession: The company continues to exist regardless of changes in membership.

 Capacity to sue and be sued in its own name.

 Ability to own property and enter contracts.

 Limited liability for shareholders (in limited companies).

The company is registered with the URSB, and a Certificate of Incorporation is issued as conclusive
evidence of its legal existence.

Explanation: Incorporation transforms the company into a “body corporate” capable of exercising all
corporate functions, as noted in Salomon v Salomon. This separation protects shareholders from
personal liability, except in cases of fraud or improper conduct.
11. What are the fees payable during the incorporation of a company in Uganda?

Answer:
The fees payable for company incorporation are governed by the Companies (Fees) Rules SI 110-3, as
amended by SI 57/2005, and include:

 Name reservation fee: Payable to the URSB for reserving the company name.

 Registration fee: Based on the company’s nominal capital, as specified in the Rules.

 Stamp duty: Payable under the Stamps Act, Cap 342 (as amended by Act 12/2005) on the
Memorandum and Articles of Association.

 Filing fees: For submitting forms like the Statement of Nominal Capital (Form A1) and
Declaration of Compliance (Form A2).

Exact amounts depend on the company’s capital structure and are outlined in the Second Schedule of
the Fees Rules.

Explanation: These fees ensure that the incorporation process is financially accounted for and that the
URSB is compensated for administrative services. Compliance with fee requirements is verified through
the Declaration of Compliance.

12. What is a prospectus, and when is it required?

Answer:
A prospectus is a document issued by a public company under the Companies Act, Cap 106, inviting the
public to subscribe for its shares or debentures. It must contain detailed information about the
company’s operations, financial position, directors, and the purpose of the share offer, as prescribed by
the Act. A prospectus is required when a company goes public or seeks public investment, but not for
private companies, which are restricted from inviting public subscriptions.

Explanation: The prospectus ensures transparency and protects investors by disclosing material facts. In
Kelner v Baxter, a prospectus was part of the scheme to form a public company, illustrating its role in
public offerings.

13. What is the procedure for incorporating a company in Uganda?

Answer:
The procedure for incorporating a company under the Companies Act, Cap 106 involves the following
steps:

1. Name Reservation: Submit an Application for Reservation of Company Name to the URSB to
secure a unique name.
 2. Preparation of Documents: Draft the Memorandum and Articles of Association, Statement of
Nominal Capital (Form A1), and Declaration of Compliance (Form A2).

3. Payment of Fees: Pay the required fees under the Companies (Fees) Rules SI 110-3, including
stamp duty under the Stamps Act, Cap 342.

4. Submission to URSB: File all documents with the URSB, along with proof of payment.

5. Verification and Registration: The URSB reviews the documents for compliance and, if satisfied,
issues a Certificate of Incorporation.

Explanation: This systematic process ensures that the company is legally formed and registered, as seen
in Salomon v Salomon, where all formalities were duly observed to create a valid company.

14. What is the forum for resolving disputes related to company incorporation?

Answer:
Disputes related to company incorporation are primarily resolved by the High Court of Uganda, which
has jurisdiction under the Companies (High Court) (Fees) Rules SI 110-4 and the Civil Procedure Act,
Cap 71. The Uganda Registration Services Bureau (URSB) handles administrative aspects of
incorporation, but legal challenges, such as disputes over name reservation or document validity, are
adjudicated by the High Court.

Explanation: The High Court’s role ensures judicial oversight of complex disputes, while the URSB
focuses on registration. The Civil Procedure Rules SI 71-1 guide court proceedings, ensuring fairness and
due process.

15. Can promoters claim reimbursement for expenses incurred before incorporation? Explain with
case law.

Answer:
Promoters cannot claim reimbursement from the company for expenses incurred before its
incorporation, as the company does not exist as a legal entity at that time. In Ngaremtoni Estates Ltd v
Commissioner of Income Tax (1969) ALR Comm. 186, the court held that a promoter has no right of
indemnity against the company for pre-incorporation obligations, even if the Articles of Association
provide for defraying preliminary expenses. Similarly, Kelner v Baxter (1866) LR 2 CP 174 confirmed that
pre-incorporation contracts do not bind the company unless a fresh contract is made post-
incorporation.

Explanation: Since the company lacks legal capacity before incorporation, it cannot be liable for
promoters’ actions. Promoters must seek alternative arrangements, such as personal agreements or
post-incorporation contracts, to recover expenses.

16. What is the significance of the separate legal personality of a company, as illustrated in Salomon v
Salomon?
Answer:
The case of Salomon v Salomon (1897) AC 22 established that a company, once incorporated, is a
separate legal entity distinct from its shareholders and directors. Mr. Salomon incorporated his business
as a limited company, holding the majority of shares. When the company faced liquidation, the court
upheld that the company was not his agent or trustee, and his personal assets were protected from
creditors. The company could own property, incur debts, and sue or be sued independently.

Explanation: This principle protects shareholders’ personal assets and ensures that the company’s
obligations do not extend to its members beyond their share contributions, reinforcing limited liability.

17. What are the requirements for a valid Memorandum of Association under the Companies Act?

Answer:
Under the Companies Act, Cap 106, a valid Memorandum of Association must include:

 Name clause: The company’s name, ending with “Limited” or “Ltd” for limited liability
companies.

 Objects clause: A clear statement of the company’s purposes and scope of activities.

 Liability clause: Specifying whether liability is limited by shares or guarantee.

 Capital clause: Detailing the authorized share capital and its division into shares (for companies
with share capital).

 Association clause: A declaration by subscribers to form the company and take shares.

It must be signed by the required number of subscribers (one for private companies, seven for public
companies) and registered with the URSB.

Explanation: These requirements ensure that the company’s purpose and structure are clearly defined,
as seen in Salomon v Salomon, where the Memorandum complied with all statutory formalities.

18. What happens if a private company exceeds the statutory limit of members?

Answer:
Under the Companies Act, Cap 106, a private company is limited to a maximum of 100 members
(excluding employees). If it exceeds this limit, it loses the privileges and exemptions granted to private
companies, such as simplified reporting requirements. As held in Lyangombe R (1959) EA 678,
exceeding the statutory limit means the company ceases to enjoy private company status and may be
required to convert to a public company or face penalties.

Explanation: The member limit preserves the close-knit nature of private companies. Exceeding it
triggers regulatory scrutiny to ensure compliance with public company obligations.

19. What is the role of the Uganda Registration Services Bureau (URSB) in company formation?
Answer:
The Uganda Registration Services Bureau (URSB), established under the Uganda Registration Services
Bureau Act, Cap 210, is responsible for:

 Processing applications for company name reservation.

 Registering the Memorandum and Articles of Association, along with other incorporation
documents.

 Issuing the Certificate of Incorporation upon successful registration.

 Maintaining a register of companies for public access.

Explanation: The URSB acts as the central authority for company registration, ensuring compliance with
the Companies Act, Cap 106 and facilitating the legal creation of companies.

20. What is a derivative claim, and what are the prerequisites for instituting one?

Answer:
A derivative claim is a lawsuit brought by a shareholder on behalf of the company to address wrongs
done to the company, such as negligence or breach of duty by directors. As outlined in Smith v Croft
(No. 2) (1987) 3 All ER 909, the prerequisites for a derivative claim include:

1. A prima facie case showing wrongdoing.

2. The company is both the defendant and plaintiff (the shareholder sues on its behalf).

3. The wrong is done to the company, not the individual shareholder.

4. The wrong is committed by those in control (majority shareholders or directors).

5. No internal remedy is available (e.g., the majority refuses to act).

6. Support from a majority of independent shareholders.

Explanation: Derivative claims protect the company’s interests when those in control act against it, as
seen in Foss v Harbottle (1843) 2 Hare 461, which established that only the company can sue for wrongs
done to it, except in exceptional cases.

21. What is the rule in Foss v Harbottle, and why is it significant?

Answer:
The rule in Foss v Harbottle (1843) 2 Hare 461 states that where a wrong is done to a company, the
proper complainant is the company itself, not individual shareholders. The case involved shareholders
suing directors for misappropriation, but the court held that the majority in a general meeting could
approve the directors’ conduct, and minority shareholders could not sue unless the majority’s decision
was oppressive or fraudulent.

Significance:
  Prevents a multiplicity of lawsuits by shareholders over the same issue.

 Upholds majority rule, binding the minority to collective decisions.

 Protects the company’s autonomy as a separate legal entity.

Explanation: The rule reinforces the principle of corporate governance, ensuring that internal
mechanisms resolve disputes unless exceptional circumstances (e.g., fraud or oppression) justify
minority action.

22. Can a company ratify a contract made on its behalf before incorporation?

Answer:
A company cannot ratify a contract made on its behalf before incorporation, as it did not exist as a legal
entity at the time. In Price v Kelsall (1957) EA 752, the court held that the mere adoption of a pre-
incorporation contract by directors does not create a contractual relationship between the company
and the other party. Similarly, Ngaremtoni Estates Ltd v Commissioner of Income Tax (1969) confirmed
that ratification is impossible, and a new contract must be made post-incorporation.

Explanation: Since the company lacks legal capacity before incorporation, it cannot assume prior
obligations through ratification. Promoters must negotiate fresh agreements to bind the company.

23. What are the consequences of oppression of minority shareholders under the Companies Act?

Answer:
Under Section 211 of the Companies Act, Cap 106, minority shareholders can petition the court if the
company’s affairs are conducted in an oppressive manner (i.e., burdensome, harsh, or wrongful). As
held in In the Matter of Nakivubo Chemists (1977) HCB 344, oppression must affect shareholders in
their capacity as members, not as directors or employees. Remedies include:

 Winding up the company (if a strong case is made and no other remedy exists).

 Court orders to regulate the company’s affairs or compensate the oppressed.

Explanation: Section 211 protects minority shareholders from unfair treatment, but the threshold is
high, requiring clear evidence of oppression. The court balances minority rights with majority rule, as
seen in Foss v Harbottle.

24. What is the difference between a private company and a public company under the Companies
Act?

Answer:
Under the Companies Act, Cap 106, the differences are:

 Number of Members: Private companies have a maximum of 100 members (excluding

employees); public companies have no limit.
  Share Transfer: Private companies restrict share transfers; public companies allow free
transferability.

 Public Subscription: Private companies cannot invite public subscriptions; public companies can
issue a prospectus to raise capital.

 Reporting Requirements: Private companies have simpler compliance obligations; public

companies face stricter regulations.

Explanation: Private companies are suited for family or small businesses, as seen in Lyangombe R (1959)
EA 678, while public companies cater to large-scale enterprises seeking public investment, as in Kelner v
Baxter.

25. What is the legal status of a company limited by guarantee?

Answer:
A company limited by guarantee under Section 3(6)(b) of the Companies Act, Cap 106 is a corporate
entity where members’ liability is limited to the amount they undertake to contribute in the event of
winding up, as specified in the Memorandum. It has no share capital and is typically used for non-profit
or charitable purposes, as seen in Sheikh Ali Ssenyonga v Sheikh Hussein Rajab Kakooza (1992-1993)
HCB 93, where the Uganda Muslim Supreme Council was incorporated as an unlimited company but
could have been a company limited by guarantee.

Explanation: This structure ensures that members are not personally liable beyond their guaranteed
contribution, making it ideal for organizations focused on community or religious objectives.

26. What is the significance of the Certificate of Incorporation?

Answer:
The Certificate of Incorporation, issued by the URSB under the Companies Act, Cap 106, is conclusive
evidence that the company has been duly incorporated and complies with all statutory requirements. It
confirms the company’s legal existence, name, and date of incorporation, enabling it to commence
business and exercise corporate powers.

Explanation: As highlighted in Salomon v Salomon, the Certificate establishes the company as a

separate legal entity, protecting shareholders and enabling contractual and legal activities.

27. What are the requirements for registering a non-governmental organization (NGO) in Uganda?

Answer:
Under the Non-Governmental Organisations Act, Cap 109, and NGO Regulations 2017, registering an
NGO involves:

1. Application in Form A to the National Bureau for NGOs, signed by at least two founder
members.
 2. Required Documents:

o Certified copy of the certificate of incorporation (if incorporated under the Companies
Act or Trustees Incorporation Act).

o Copy of the organization’s constitution or governing documents.

o Governance structure chart.

o Proof of payment of prescribed fees.

o Funding sources.

o Valid IDs of at least two founder members.

o Minutes and resolutions authorizing registration.

o Organizational structure statement.

o Recommendations from the district NGO monitoring committee and relevant ministry.

3. Issuance of Certificate: Upon compliance, the Bureau issues a Certificate of Registration (Form
B).

4. Permit Application: Post-registration, apply for a permit in Form D, specifying operations,

staffing, and geographical coverage, leading to a Permit (Form E) valid for up to 5 years.

Explanation: These requirements ensure that NGOs operate transparently and align with national
objectives, as outlined in the detailed application forms provided in the textbook content.

28. What is the difference between a partnership and a company under Ugandan law?

Answer:

 Legal Status: A company under the Companies Act, Cap 106 is a separate legal entity with
perpetual succession; a partnership under the Partnerships Act, Cap 110 is not a legal entity and
ceases upon a partner’s exit.

 Liability: Company shareholders have limited liability; partners have unlimited liability (except in
limited liability partnerships under Section 47).

 Membership: Partnerships are limited to 20 persons (50 for professionals); private companies to
100, and public companies have no limit.

 Formation: Companies require formal registration with the URSB; partnerships can be formed
by agreement without registration.

Explanation: Companies offer greater legal protection and scalability, as seen in Salomon v Salomon,
while partnerships are simpler but riskier due to unlimited liability, as per the Partnerships Act.
29. What is the procedure for a company to go public in Uganda?

Answer:
For a company to go public under the Companies Act, Cap 106, it must:

1. Convert to a Public Company: If a private company, amend its Memorandum and Articles to
remove restrictions on share transfers and member limits.

2. Issue a Prospectus: Prepare a prospectus detailing the company’s operations, financials, and
share offer, complying with statutory disclosure requirements.

3. Obtain Approvals: Secure approval from the URSB and, if listing on a stock exchange, the Capital
Markets Authority.

4. File Documents: Submit updated Memorandum and Articles, prospectus, and other forms to the
URSB.

5. Pay Fees: Settle fees under the Companies (Fees) Rules SI 110-3.

Explanation: Going public allows a company to raise capital from the public, as seen in Kelner v Baxter,
where a prospectus was part of the public company formation scheme, but it requires strict compliance
with regulatory standards.

30. What are the legal implications of a company’s failure to hold meetings, as illustrated in case law?

Answer:
Failure to hold meetings can lead to legal consequences, including oppression of shareholders or invalid
decisions. In In the Matter of Allied Food Products Ltd (1978) HEB 294, the court found that removing a
director without notifying them of a general meeting or holding one constituted oppressive conduct
under Section 211 of the Companies Act, Cap 106. Similarly, In the Matter of Air-Rep International Ltd
(1984) HCB 63 allowed a shareholder to call a meeting under Section 135 when it was impracticable to
do so, ensuring governance continuity.

Explanation: Regular meetings are essential for corporate governance, allowing shareholders to exercise
their rights. Failure to comply can trigger court intervention to protect members’ interests or resolve
deadlocks.

Below is a list of 70 possible oral questions that you may be asked during your exam preparation for
Corporate and Commercial Practice at the Law Development Centre, focusing on Formation and
Management of Companies, NGOs, and Trustees Incorporation. Each question is followed by a detailed
and accurate answer based on the provided textbook content, incorporating relevant provisions from
the Companies Act, case law, and other applicable laws. The answers aim to be comprehensive yet
concise, with explanations to aid your understanding and exam readiness.

Questions and Answers

Characteristics of a Company

1. What is the definition of a company according to Professor David Bakibinga?

Answer: Professor David Bakibinga, in Company Law in Uganda (page 2), defines a company as
an artificial legal entity separate and distinct from its members or shareholders.
Explanation: This definition emphasizes the company’s legal personality, distinguishing it from
other business forms like partnerships, as it can act independently of its members.

2. What is meant by the separate legal personality of a company?

Answer: A company’s separate legal personality means it is a distinct legal entity from its
members, capable of owning property, suing, being sued, and incurring obligations
independently, as held in Salomon v Salomon (1897) AC 22.
Explanation: This principle, affirmed in John Lubega Matovu v Mukwano Investments Ltd
(2012), protects shareholders from personal liability and enables the company to function as a
legal “person.”

3. How does the case of Salomon v Salomon illustrate separate legal personality?
Answer: In Salomon v Salomon (1897) AC 22, Mr. Salomon incorporated his business, holding
most shares. When the company went bankrupt, creditors sought to hold him personally liable.
The court held that the company was a separate legal entity, and Salomon was not liable for its
debts.
Explanation: This landmark case established that incorporation creates a distinct entity,
shielding members from personal liability unless fraud is proven.

4. Can a shareholder be an employee of the company? Explain with case law.

Answer: Yes, a shareholder can be an employee, as held in Lee v Lee’s Air Farming Ltd (1960)
UKPC 33. Lee, the controlling shareholder and director, was killed while piloting for the
company. His wife claimed workers’ compensation, and the court ruled that Lee was an
employee, as the company was a separate entity capable of contracting with him.
Explanation: The separate legal personality allows shareholders to enter contracts, including
employment, with the company without conflating their roles.

5. What does perpetual succession mean for a company?

Answer: Perpetual succession means a company continues to exist despite changes in
membership due to death, insolvency, or resignation, as per Section 3, Companies Act, Cap 106.
Only winding up terminates it, as seen in Re Noel Tedman Holding Pty Ltd (1967) QB 561.
Explanation: This ensures business continuity, protecting commercial stability, as shares can be
transferred or inherited without dissolving the company.

6. How was perpetual succession illustrated in Re Noel Tedman Holding Pty Ltd?
Answer: In Re Noel Tedman Holding Pty Ltd (1967) QB 561, both shareholders (a husband and
wife) died in an accident. The court held that the company continued to exist, allowing personal
representatives to appoint directors and transfer shares.
Explanation: This case underscores that a company’s existence is independent of its members,
ensuring it survives even catastrophic events.
 7. Can a shareholder claim ownership of company property?
Answer: No, shareholders cannot claim company property, as it belongs to the company, a
separate entity. In Macaura v Northern Assurance Co (1925) AC, a shareholder’s insurance
claim for company-owned timber was denied because he had no legal interest in the property.
Explanation: The company’s separate property rights prevent shareholders from treating
company assets as personal property, protecting corporate integrity.

8. What happens if a company is sued under an incorrect name?

Answer: A suit against a company in an incorrect name is a nullity, as held in Quick Cargo
Handling Services Ltd v Iron Steel Waves (2002). The court dismissed a case because the
plaintiff sued a non-existent entity (“Property Management Services Ltd” instead of “Properties
Management Ltd”).
Explanation: The company’s registered name is its legal identity, and errors in naming invalidate
proceedings, emphasizing precision in legal actions.

9. What is the significance of a company’s common seal?

Answer: The common seal is an embossment with the company’s name and address, used to
authenticate documents, as per Section 48, Companies Act, Cap 106. In Kintu v Kyotera
Growers (1976) HCB 336, the court held that the seal indicates corporate authority unless
otherwise regulated.
Explanation: The seal ensures document authenticity, though documents signed by authorized
directors may not require it, streamlining corporate processes.

10. Can a company have racial attributes or citizenship?

Answer: A company cannot have racial attributes, as it is an abstract entity, as held in Katate v
Nyakatura (1956) 7 ULR 47. However, it can be classified as a citizen or non-citizen company
under Section 40, Land Act, Cap 227, affecting its ability to hold certain land types.
Explanation: While a company lacks human traits, legal classifications impact its rights, such as
land ownership restrictions for non-citizen companies.

Types of Companies

11. What are the main types of companies under the Companies Act?
Answer: The Companies Act, Cap 106 recognizes:

o Registered Companies: Private and public companies incorporated under the Act.

o Statutory Companies: Formed by Acts of Parliament (e.g., NWSC).

o Chartered Companies: Granted royal charters (e.g., Oxford colleges).

o Corporate Sole: Single-person offices (e.g., Kabaka of Buganda).

Explanation: These categories reflect diverse corporate structures, with registered
companies being the most common in Uganda.

12. What is a private company under the Companies Act?

Answer: A private company, per Section 4, Companies Act, Cap 106, restricts share transfers,
limits members to 100 (excluding employees), and prohibits public share subscriptions.
 Explanation: Private companies ensure control by a small group, ideal for family or closely-held
businesses, as seen in Lutaya v Gandesha (1987) HCB 49.

13. What defines a public company under the Companies Act?

Answer: A public company, per Section 5, Companies Act, Cap 106, has a minimum of seven
members, no maximum limit, and can invite public subscriptions via a prospectus. Its name ends
with “Public Limited Company (PLC).”
Explanation: Public companies facilitate large-scale investment, requiring stricter compliance
due to public involvement.

14. What are the key differences between private and public companies?
Answer:

o Members: Private (2–100); Public (7–infinity).

o Share Transfer: Private restricts; Public allows free transfer.

o Public Subscription: Private prohibits; Public permits via prospectus.

o Commencement: Private starts post-incorporation; Public needs a trading certificate.

o Meetings: Public requires statutory meetings; Private does not.

Explanation: These distinctions balance flexibility for private companies with
accountability for public ones, as per Sections 4–5, Companies Act.

15. What is a company limited by shares?

Answer: A company limited by shares, per Section 3(6)(a), Companies Act, Cap 106, limits
members’ liability to the unpaid amount on their shares.
Explanation: This structure, common in commercial entities, protects shareholders from
personal liability beyond their investment, as in Salomon v Salomon.

16. What is a company limited by guarantee?

Answer: A company limited by guarantee, per Section 3(6)(b), Companies Act, Cap 106, limits
members’ liability to a specified amount they undertake to contribute upon winding up, typically
used for NGOs or charities.
Explanation: This suits non-profit entities, ensuring members’ liability is capped, unlike
unlimited companies.

17. What is an unlimited company?

Answer: An unlimited company, per Section 3(6)(c), Companies Act, Cap 106, imposes no limit
on members’ liability, making them personally responsible for all company debts.
Explanation: Rare due to high risk, this structure exposes members’ personal assets, unlike
limited liability companies.

18. What happens if a company’s membership falls below the legal minimum?
Answer: Per Section 33, Companies Act, Cap 106, if a company operates for over six months
with fewer than two members (private) or seven (public), members aware of this are personally
liable for debts incurred during that period.
 Explanation: This lifts the corporate veil to ensure compliance with statutory requirements,
protecting creditors.

19. What is a single member company (SMC)?

Answer: A single member company, per Section 3(1) and Regulation 3, Companies (Single
Member) Regulations 2016, is a company with one shareholder, enjoying limited liability and
separate personality.
Explanation: SMCs allow sole proprietors to incorporate, balancing simplicity with corporate
benefits, as seen in Regulation 9 requiring “SMC Ltd” in the name.

20. What are the requirements for incorporating a single member company?
Answer: Per Regulations 4–8, SMC Regulations 2016:

o Reserve a name with “SMC Ltd” (Section 34, Companies Act).

o Submit a registration form (Regulation 4).

o Prepare Memorandum and Articles (Regulation 5).

o Nominate a nominee and alternate director (Regulation 6).

o File documents with the registrar, paying prescribed fees.

o Obtain a certificate of incorporation (Regulation 8).

Explanation: These steps ensure legal recognition while addressing the unique structure
of SMCs, safeguarding continuity upon the member’s death.

Single Member Companies

21. What happens upon the death of a single member in an SMC?

Answer: Per Section 85(3), Companies Act, Cap 106, and Regulation 11, SMC Regulations:

o The nominee director manages affairs and transfers shares to legal heirs within 30 days.

o The company passes a special resolution to convert to a private company, altering

articles.

o Additional directors are appointed within 15 days, notifying the registrar.

o A conversion notice is filed within 60 days.

Explanation: This ensures the company’s continuity or orderly transition, preventing
dissolution due to the sole member’s death.

22. How can an SMC convert to a private company?

Answer: Per Section 85 and Regulation 10, SMC Regulations:

o Pass a special resolution to change status within 30 days of share transfer/allotment.

o Alter articles to reflect private company status.

o Appoint additional directors within 15 days, notifying the registrar.

o File a conversion notice within 60 days.

 o The registrar issues a conversion certificate.
Explanation: Conversion accommodates growth or legal requirements, ensuring
compliance with Companies Act provisions for private companies.

23. What is the process for purchasing shares in an SMC?

Answer: Per the textbook:

o Conduct a registry search to verify company status and liabilities.

o Negotiate and draft a share sale agreement.

o Execute a transfer form, signed by both parties.

o Submit the form and agreement to the company.

o Pass a special resolution to convert to a private company, altering articles (Section

85(2)).

o Appoint directors and notify the registrar.

o File a conversion notice (Section 85(6)).

o Receive a share certificate (Section 89).

Explanation: This structured process ensures transparency and legal compliance,
converting the SMC to a multi-member private company.

24. What role does the nominee director play in an SMC?

Answer: Per Section 182 and Regulation 11, SMC Regulations, the nominee director:

o Manages the company upon the single member’s death until shares are transferred.

o Notifies the registrar of the death within 15 days, providing heir details.

o Transfers shares to legal heirs.

o Calls a general meeting to elect directors.

Explanation: The nominee ensures continuity, bridging the gap until heirs assume
control or the company converts.

25. What is conversion by operation of law in an SMC?

Answer: Per Section 85(4), Companies Act, Cap 106:

o Shares are transferred within seven days per court order.

o A special resolution changes status to a private company within 30 days.

o Additional directors are appointed within 15 days, notified within 14 days.

o A conversion notice is filed within 60 days.

Explanation: This occurs when legal mandates (e.g., court orders) require share
transfers, necessitating a shift to private company status.

Promoters
26. Who is a promoter, and what is their role?
Answer: A promoter, per Twycross v Grant (1877), is one who undertakes to form a company
for a project, taking steps like securing capital, premises, or drafting documents.
Explanation: Promoters initiate the company’s formation, laying the groundwork for its legal
and operational setup, as seen in Re Leads & Hanley Theatres (1902).

27. What distinguishes a promoter from an employee or professional?

Answer: A promoter actively forms the company, unlike employees or professionals (e.g.,
lawyers) who perform specific tasks without decision-making roles, as held in Re Great Wheal
Polgooth Ltd (1883).
Explanation: Promoters bear entrepreneurial responsibility, distinguishing them from hired
experts who lack promotional intent.

28. What are the duties of a promoter?

Answer: Promoters owe:

o Good faith: Disclose profits to an independent board or shareholders (Erlanger v New

Sombrero Co (1978)).

o Skill and care: Avoid misrepresentations in documents like prospectuses.

o Best interests: Prevent conflicts of interest, e.g., overpriced property sales.

Explanation: These fiduciary duties ensure promoters act transparently, protecting the
company and investors.

29. What remedies are available for a promoter’s breach of duty?

Answer: Remedies include:

o Accounting for secret profits (Glueckstein v Barnes (1900) AC 240).

o Rescission of contracts (Erlanger v New Sombrero).

o Damages for misrepresentation, non-disclosure, or negligence.

Explanation: These remedies restore fairness, compelling promoters to compensate for
breaches or undo improper transactions.

30. Can a promoter claim remuneration automatically?

Answer: No, promoters have no automatic right to remuneration unless a valid contract exists,
as per Touche v Metropolitan Railway Warehousing Co (1871). Articles may allow expense
recovery, but professional promoters expect disclosed rewards.
Explanation: Without a contract, promoters bear financial risk, encouraging transparency in
remuneration agreements.

31. Why can’t a promoter act as an agent of the company before incorporation?
Answer: A promoter cannot be an agent because the company does not exist pre-incorporation,
as held in Kelner v Baxter (1866) LR 2 CP 174.
Explanation: Agency requires a principal, which a non-existent company cannot be, making
promoters personally liable for pre-incorporation actions.
 32. What is the effect of a pre-incorporation contract under the Companies Act?
Answer: Per Section 52, Companies Act, Cap 106:

o Pre-incorporation contracts bind the promoter personally (Section 52(1)).

o The company may adopt them post-incorporation without novation (Section 52(2)).

o Adoption releases the promoter’s liability (Section 52(3)).

Explanation: This balances promoter risk with company flexibility, unlike Kelner v
Baxter, where non-adoption left promoters liable.

33. Can a company enforce a pre-incorporation contract?

Answer: No, a company cannot enforce pre-incorporation contracts, as it was not a party, per
Natal Land and Colonization Co v Pauline and Development Syndicate (1940) AC 120. A new
contract (novation) is required.
Explanation: Lack of pre-incorporation capacity prevents enforcement, requiring explicit post-
incorporation agreements.

34. What is novation in the context of pre-incorporation contracts?

Answer: Novation is entering a new contract post-incorporation with terms similar to the pre-
incorporation contract, binding the company, as seen in Re Northumberland Avenue Hotel Co
Ltd (1886).
Explanation: Novation ensures the company’s liability, replacing the promoter’s personal
obligation with a corporate one.

Registration of Companies

35. What is the purpose of registering a company?

Answer: Registration under Section 3(5), Companies Act, Cap 106, creates a legal entity to
pursue profit (e.g., public companies), non-profit goals (e.g., NGOs), or small/large-scale
investments.
Explanation: Registration formalizes the company’s existence, granting it rights and obligations
distinct from its members.

36. What are the steps for registering a company in Uganda?

Answer:

o Name Search: Verify name availability (Section 34(1)).

o Name Reservation: Reserve for 30–60 days (Section 34).

o Prepare Documents: Memorandum, Articles, forms (Section 6).

o Pay Fees: Registration, stamp duty (1% capital >5M, 0.5% capital).

o File with Registrar: Submit documents for review.

o Receive Certificate: Issued upon compliance.

Explanation: These steps, governed by the Companies Act, ensure legal recognition and
operational readiness.
37. What is the role of the registrar of companies in registration?
Answer: Per Sections 34–38, Companies Act, Cap 106, the registrar:

o Reserves names (Section 34(1)).

o Rejects undesirable names (Section 34(2)).

o Directs name changes if misleading (Section 35(1)).

o Issues certificates (Section 35(5)).

Explanation: The registrar ensures compliance, maintaining a clear and lawful company
register.

38. How can a registrar’s decision be challenged?

Answer: Per Section 35(3), Companies Act:

o Appeal to the Registrar General.

o If unresolved, apply to the High Court via notice of motion and affidavit within 21 days.

o Remedies include declarations, cancellations, or injunctions.

Explanation: This process ensures judicial oversight, protecting parties from erroneous
decisions.

39. What are the contents of the Memorandum of Association?

Answer: Per Section 6, Companies Act, Cap 106:

o Name with “Limited” (if applicable).

o Registered office in Uganda.

o Objects clause.

o Liability statement (limited/unlimited).

o Share capital and division (if applicable).

o Subscriber details and shares.

Explanation: The Memorandum defines the company’s scope, acting as its
constitutional framework.

40. What is the ultra vires doctrine?

Answer: The ultra vires doctrine, per Section 48–51, Companies Act, Cap 106, restricts a
company to activities authorized by its Memorandum. Contracts beyond this are void, as in
Ashbury Railway Carriage Co v Richie (1875).
Explanation: This protects stakeholders by limiting corporate actions, though modern laws relax
strict enforcement (Section 50).

41. How has the ultra vires doctrine been modified under the Companies Act?
Answer: Per Section 50, Companies Act, Cap 106, third parties dealing in good faith are not
bound by Memorandum limitations, protecting their transactions despite directors’ overreach.
 Explanation: This reform, seen in Bell Houses Ltd v City Wall Properties Ltd (1962), balances
flexibility with accountability, reducing ultra vires disputes.

42. What are implied powers in a company’s Memorandum?

Answer: Courts imply powers like appointing agents (Ferguson v Wilson (1866)), borrowing
(General Auction Estates v Smith (1891)), or paying gratuities (Presumption Prices Patent
Candle Co (1976)) if not expressly stated.
Explanation: Implied powers enable functionality, but express inclusion avoids litigation, as
advised in the textbook.

43. What is the purpose of the Articles of Association?

Answer: Per Sections 11–21, Companies Act, Cap 106, Articles regulate internal management,
covering directors, meetings, shares, and dividends, subject to the Memorandum.
Explanation: Articles ensure orderly governance, complementing the Memorandum’s external
scope, as in Table A provisions.

44. What are the contents of the Articles of Association?

Answer: Per Table A, Companies Act:

o Director appointments, powers, and removal.

o Meeting procedures and quorum.

o Share classes and rights.

o Dividend distribution.

o Company seal usage.

Explanation: These rules tailor the company’s operations, ensuring clarity in internal
affairs.

45. How can Articles of Association be altered?

Answer: Per Section 16, Companies Act, Cap 106, Articles can be altered by a special resolution
(75% majority) unless illegal, conflicting with the Act, or prejudicial to members’ rights.
Explanation: This flexibility allows adaptation, but safeguards prevent abuse, ensuring fairness.

46. What is the contractual effect of the Memorandum and Articles?

Answer: Per Section 19, Companies Act, Cap 106, they bind:

o The company and members as a contract.

o Members inter se.

o Not non-members or members in non-member capacities (Hickman v Kent (1915)).

Explanation: This creates enforceable obligations, as seen in Wood v Oddesa Water
Works (1889), protecting member rights.

47. Why can’t a non-member enforce the Articles of Association?

Answer: Articles bind only the company and members qua members, not third parties, as held
in Hickman v Kent (1915) and Beattie v E & Beattie Ltd (1938).
 Explanation: This limits contractual scope to members, preventing external interference in
corporate governance.

48. How do the Memorandum and Articles interact when there is a conflict?
Answer: The Memorandum prevails over the Articles if there’s a conflict, as it’s the company’s
constitution (Section 19). Articles clarify ambiguities without overriding, as in Re South Durham
Brewery Co (1885).
Explanation: This hierarchy ensures the Memorandum’s supremacy, maintaining the company’s
core objectives.

49. Who is considered a member of a company?

Answer: Per Sections 47–49, Companies Act, Cap 106, a member is someone who signs the
Memorandum or whose name is entered in the register after share allotment, as in Mawogola
Coffee Factory v Kayanja.
Explanation: Membership requires formal recognition, ensuring legal clarity in rights and
obligations.

50. Can a minor be a shareholder?

Answer: Yes, a minor can be a shareholder but incurs no liability until reaching majority and
failing to repudiate the contract within a reasonable time, per Mawogola Coffee Factory v
Kayanja.
Explanation: This protects minors while allowing share ownership, with repudiation rights upon
adulthood.

Consequences of Incorporation

51. What are the consequences of incorporation under the Companies Act?
Answer: Per Section 3, Companies Act, Cap 106:

o Separate Legal Personality: Distinct from members (Salomon v Salomon).

o Limited Liability: Members liable only for unpaid shares or guarantees.

o Perpetual Succession: Continues despite member changes.

o Property Ownership: Owns assets independently.

o Legal Proceedings: Can sue/be sued.

Explanation: These attributes, rooted in Salomon, enable corporate autonomy and
member protection.

52. How does limited liability benefit shareholders?

Answer: Limited liability, per Section 47, Companies Act, restricts shareholders’ responsibility to
unpaid share amounts, protecting personal assets, as in Sentamu v UCB (1983).
Explanation: This encourages investment by capping financial risk, distinguishing companies
from partnerships.

53. What is the significance of a company owning property separately?

Answer: Separate property ownership, per Macaura v Northern Assurance Co (1925), ensures
company assets are distinct from members’, preventing personal claims, as in Hindu Dispensary
 Zanzibar v N.A. Patwa & Sons.
Explanation: This clarity protects corporate assets, facilitating business operations through
agents.

54. How does perpetual succession impact a company’s operations?

Answer: Perpetual succession, per Section 3, ensures the company survives member changes,
maintaining business continuity, as in Re Noel Edman Holding Property.
Explanation: This stability reassures stakeholders, enabling long-term contracts and
investments.

55. What are the rules for suing a company?

Answer: A company must be sued in its registered name, and representatives need board
authorization, though lack of resolution doesn’t invalidate suits, per Construction Engineers v
New Vision (1991). Incorrect names nullify suits (Denis Njemanze v Shell B.P).
Explanation: Precision in naming and authorization ensures legal accountability, protecting
corporate identity.

Ultra Vires and Contracts

56. What is an example of an ultra vires contract?

Answer: In Ashbury Railway Carriage Co v Richie (1875), financing a railway was ultra vires
because it wasn’t authorized by the Memorandum, rendering the contract void.
Explanation: Ultra vires contracts exceed corporate powers, historically unenforceable, though
Section 50 now protects third parties.

57. How do third parties benefit from Section 50 of the Companies Act?
Answer: Section 50, Companies Act, Cap 106, ensures third parties dealing in good faith aren’t
affected by directors’ ultra vires actions, validating transactions.
Explanation: This reform, seen in Bell Houses, enhances commercial confidence by protecting
external contracts.

58. What types of contracts can a company make under Section 48?
Answer: Per Section 48, Companies Act:

o Written contracts, signed by authorized persons, if required by law.

o Oral contracts, if valid between individuals, by authorized agents.

o Contracts under the common seal.

Explanation: This flexibility ensures companies can contract efficiently, binding
successors and parties.

59. Can a company vary or discharge a contract?

Answer: Yes, per Section 48(4), Companies Act, contracts can be varied or discharged in the
same manner as made (written/oral, by authorized persons).
Explanation: This mirrors individual contract law, ensuring consistency in corporate obligations.

Registration of Foreign Companies

60. What is the difference between incorporation and registration of foreign companies?
Answer: Incorporation creates a new company under the Companies Act, Cap 106, while
registration, per Section 252, allows an existing foreign company to operate in Uganda without
re-incorporation.
Explanation: Registration extends the foreign company’s legal presence, recognizing its prior
incorporation.

61. What documents are required to register a foreign company in Uganda?

Answer: Per Section 252, Companies Act, Cap 106, within 30 days:

o Certified copy of Memorandum, Articles, or constitution (translated if not in English).

o List of directors and secretaries (Form A19).

o Statement of subsisting charges (Form A20).

o Authorized agents’ details (Form A21).

o Registered office address (Form A22).

Explanation: These ensure transparency and compliance with Ugandan law, enabling
oversight.

62. What happens after a foreign company is registered?

Answer: Per Section 253, Companies Act, the registrar issues a certificate of registration, and
the company is subject to the Act as a local company.
Explanation: This integrates foreign companies into Uganda’s regulatory framework, ensuring
accountability.

63. What is an investment license for a foreign company?

Answer: Per Section 10, Investment Code Act, Cap 92, a foreign company needs an investment
license from the Uganda Investment Authority to operate, detailing business plans, capital, and
incentives.
Explanation: The license regulates foreign investment, ensuring economic alignment, as per
Sections 11–15.

64. What information must an investment license application include?

Answer: Per Section 11(1), Investment Code Act:

o Business name, address, and legal form.

o Directors’ and shareholders’ details (non-citizens).

o Business nature, location, capital structure, and growth projections.

o Employee qualifications and incentives sought.

Explanation: This comprehensive data ensures viability and compliance with national
interests.

65. How long does it take to process an investment license?

Answer: Per Section 14, Investment Code Act, the authority reviews within 30 days, prepares a
 report, decides within 14 days, and informs the applicant within 7 days.
Explanation: This timeline ensures efficiency, balancing investor needs with regulatory scrutiny.

NGOs and Trustees Incorporation

66. How is an NGO registered under Ugandan law?

Answer: Per NGO Act, Cap 109 (though not detailed in the text, cross-referenced):

o Apply in Form A to the National Bureau for NGOs.

o Submit incorporation certificate, constitution, governance chart, founder IDs, and fees.

o Obtain a certificate (Form B) and permit (Form E) within 45 days.

Explanation: This aligns NGOs with regulatory oversight, ensuring transparency in
operations.

67. What is a company limited by guarantee used for?

Answer: A company limited by guarantee, per Section 3(6)(b), Companies Act, is used for non-
profit purposes like NGOs or charities, limiting members’ liability to a guaranteed amount.
Explanation: This structure suits organizations prioritizing social goals over profit, as implied in
the text.

68. What is the process for incorporating trustees under the Trustees Incorporation Act?
Answer: Per Section 2, Trustees Incorporation Act, Cap 271 (referenced in prior content):

o Apply in Form 1 to the Minister for Lands for a certificate.

o Submit in duplicate, detailing purpose (e.g., charitable).

o Pay fees (20,000/= application, 10,000/= certificate).

o Receive a corporate body certificate.

Explanation: This formalizes trusts for religious, educational, or charitable purposes,
granting legal status.

69. What are the benefits of incorporating a trust?

Answer: Incorporation under the Trustees Incorporation Act grants corporate status, perpetual
succession, and the ability to hold property, enhancing credibility and legal protection.
Explanation: This mirrors corporate benefits, ensuring trusts operate effectively for their
intended purposes.

70. Why might a foreign company prefer registration over incorporation in Uganda?
Answer: Registration, per Section 252, Companies Act, allows a foreign company to extend
operations without creating a new entity, preserving its original structure and avoiding re-
incorporation costs.
Explanation: This streamlines expansion, leveraging existing corporate identity while complying
with local laws.
Below is a revised list of 70 possible oral questions for your Corporate and Commercial Practice exam
at the Law Development Centre, focusing on Management of Company - Directors, Shareholders, and
Other Officers, as per the provided textbook content. Each question is followed by a more detailed and
accurate answer, incorporating relevant provisions from the Companies Act, Cap 106, case law, and
other regulations. The answers are comprehensive, include deeper explanations, and align with the
textbook to enhance your understanding and exam readiness. They aim to provide clarity, context, and
practical insights while remaining structured for oral delivery.

Questions and Answers

Directors: Definition and Types

1. What is the legal definition of a director, and how does case law illustrate their role?
Answer: A director is a person responsible for directing and managing the affairs of a company,
acting as its directing mind and will, as established in Stanbic Bank Ug Ltd v Ducat Lubricants (U)
Ltd (2012). The court emphasized that directors, alongside managers, embody the company’s
decision-making authority, distinguishing them from shareholders who exercise control through
meetings. This role involves strategic oversight, policy formulation, and operational
management, ensuring the company’s objectives are met. For example, directors decide on
contracts, investments, or legal actions, acting as fiduciaries to safeguard the company’s
interests.
Explanation: The Stanbic Bank case underscores the director’s pivotal role as the company’s
brain, legally distinct from its owners. This separate legal personality, rooted in Salomon v
Salomon (1897), means directors’ actions bind the company, not themselves personally, unless
they breach duties. Understanding this is crucial for questions on corporate governance, as
directors’ decisions shape the company’s trajectory, balancing shareholder expectations with
legal compliance.

2. What are the minimum director requirements for private and public companies under the
Companies Act?
Answer: Section 181, Companies Act, Cap 106, mandates that a private company must have at
least one director, while a public company requires a minimum of two directors. For private
companies, this single-director rule accommodates smaller entities, like single member
companies (SMCs), where efficiency is key. Public companies, due to their broader stakeholder
base and public accountability, need at least two to ensure diverse input and prevent unilateral
decision-making. These requirements apply at registration and throughout the company’s
existence, with non-compliance risking penalties or invalid actions.
Explanation: The distinction reflects the differing governance needs of private and public
companies. Private companies, often family-run or closely held, benefit from flexibility, while
public companies face stricter rules to protect investors, as seen in regulations like the Capital
Markets Corporate Governance Guidelines 2003. This question tests your grasp of statutory
thresholds and their practical implications, such as ensuring a quorum for board decisions.

3. Who is an executive director, and what specific roles do they undertake?

Answer: An executive director, as per the textbook, is a full-time officer of the company actively
 engaged in its administrative and managerial operations. Examples include the managing
director or chief executive officer (CEO), who oversee daily business activities. Under Article
107, Table A, the board appoints a managing director from among themselves, delegating
specific powers, such as negotiating contracts, managing staff, or implementing strategy, subject
to terms and restrictions set by the board. For instance, a managing director might finalize a
supply agreement or lead expansion plans, acting as the company’s operational head. Their role
contrasts with non-executive directors, who focus on oversight rather than execution.
Explanation: Executive directors are the engine of the company, translating board policies into
action. Their full-time commitment ensures hands-on management, critical for operational
success. Article 107’s delegation mechanism allows tailored authority, balancing flexibility with
accountability. This question probes your understanding of internal governance structures and
the practical division of labor within a board.

4. How does a non-executive director differ from an executive director in terms of duties and
involvement?
Answer: A non-executive director, as outlined in the textbook, does not participate in the
company’s day-to-day administrative or managerial operations, unlike an executive director who
is deeply involved in daily business execution. Non-executive directors provide strategic
oversight, independent judgment, and advice, attending board meetings to review performance,
approve budgets, or scrutinize executive actions. For example, they might challenge a CEO’s
risky investment plan to ensure alignment with shareholder interests. Their part-time role, often
held by industry experts or prominent figures, enhances objectivity, free from operational
biases. In contrast, executive directors, like the managing director, handle tasks like staff
supervision or contract negotiations, embedded in the company’s routine.
Explanation: The distinction ensures a balanced board, combining insider expertise (executive)
with external perspective (non-executive). Non-executive directors act as checks, vital for
governance in public companies where transparency is paramount. This question tests your
ability to differentiate roles and their impact on corporate decision-making, a recurring exam
theme.

5. What is meant by a de facto director, and what are the legal implications of their actions?
Answer: A de facto director, per the textbook, is an individual who has not been formally
appointed as a director but assumes and performs directorial roles in managing the company’s
affairs. For instance, someone regularly chairing board meetings or signing major contracts
without a formal title acts as a de facto director. Legally, they are treated as directors under
Section 2, Companies Act, Cap 106, incurring the same duties and liabilities, such as fiduciary
obligations or accountability for mismanagement. If they authorize an ultra vires act, they could
face personal liability, as courts disregard their lack of formal appointment, focusing on their
conduct.
Explanation: The concept prevents individuals from evading responsibility by avoiding formal
titles while wielding directorial power. It protects stakeholders by ensuring accountability,
aligning with principles in cases like Re Hydrodam (Corby) Ltd (1994) (UK context, implied). This
question requires you to link informal roles to statutory duties, a nuanced governance issue.

6. Who is a shadow director, and how did the court in Re Unisoft Group clarify their role?
Answer: A shadow director, defined under Section 2, Companies Act, Cap 106, is a person not
 formally appointed as a director but whose instructions or directions the actual directors
habitually follow. They operate behind the scenes, exerting significant control over board
decisions. In Re Unisoft Group (1993) BCLC 532, the court described a shadow director as a
“puppet master” who controls the board’s actions as a regular practice over time, not through
occasional advice. For example, a major shareholder dictating strategy to compliant directors
could be a shadow director. They face the same liabilities as formal directors, such as for
wrongful trading or breaches of duty, ensuring accountability for their influence.
Explanation: The shadow director concept closes loopholes where individuals manipulate
companies without formal roles, as seen in UK cases like Secretary of State v Deverell (2001)
(contextual relevance). The Unisoft imagery highlights their covert control, a key exam point for
distinguishing influence from advice (e.g., professional consultants are exempt). This question
tests your grasp of indirect governance and legal consequences.

7. What is the role of a nominee director in a single member company, and how is it activated?
Answer: In a single member company (SMC), a nominee director, per Section 182(2),
Companies Act, Cap 106, and Regulation 11(2), Companies (Single Member) Regulations 2016,
is an individual nominated by the single member to act as director upon the member’s death.
Their roles include managing the company’s affairs temporarily, notifying the registrar of the
death with details of legal heirs within 15 days, transferring shares to those heirs, and convening
a general meeting to elect new directors. For instance, if the sole member dies, the nominee
director might oversee operations like paying suppliers or filing returns until shares are legally
transferred. Their role activates only upon the member’s death, ensuring continuity, and ceases
once the company converts to a private company or new directors are appointed.
Explanation: The nominee director is a safeguard for SMCs, preventing operational collapse
when the sole member dies. The detailed process—notification, share transfer, and election—
reflects the SMC Regulations’ focus on orderly transitions. This question assesses your
understanding of SMC-specific governance, a unique aspect of Ugandan company law, and the
interplay of statutory and regulatory provisions.

8. What is an alternate nominee director in an SMC, and how does their role function?
Answer: An alternate nominee director, defined under Regulation 3, Companies (Single
Member) Regulations 2016, is an individual nominated by the SMC’s single member to act as
the nominee director if the primary nominee is unavailable (e.g., due to illness or absence). Per
Section 182(2) and Regulation 11, they assume the same responsibilities as the nominee
director upon activation: managing the company post-member’s death, notifying the registrar,
transferring shares to legal heirs, and calling a meeting to elect directors. For example, if the
nominee director is abroad when the member dies, the alternate steps in to maintain
operations, such as signing contracts or filing compliance documents. Their role ensures no
governance gap in the SMC’s transition.
Explanation: The alternate nominee is a backup mechanism, critical for SMCs’ continuity,
reflecting the Companies Act’s foresight in addressing unforeseen unavailability. This
redundancy protects stakeholders, ensuring seamless management. The question tests your
ability to distinguish SMC roles and apply regulations to practical scenarios, a likely exam focus
given SMCs’ unique structure.
 9. How is a managing director appointed, and what powers are delegated to them?
Answer: Under Article 107, Table A, the managing director is appointed by the board from
among its directors through a resolution, typically at a board meeting. The board entrusts them
with specific powers exercisable by directors, such as entering contracts, hiring staff, or
overseeing operations, subject to terms, conditions, and restrictions they deem fit. For instance,
the board might authorize the managing director to negotiate a loan up to a certain limit or
manage a new branch, revocable at their discretion. These powers are detailed in the
appointment resolution or a separate agreement, ensuring clarity. The Capital Markets
Corporate Governance Guidelines 2003 recommend separating the managing director (CEO)
role from the chairperson to avoid power concentration, enhancing accountability.
Explanation: The appointment process reflects the board’s trust in a director’s leadership, with
Article 107 providing flexibility to tailor authority. The managing director’s role bridges strategic
oversight and execution, critical for operational success. Governance guidelines add a layer of
best practice, relevant for public companies. This question requires you to connect appointment
mechanics with practical powers, a common exam angle for testing governance depth.

10. What guidelines govern the separation of chairperson and chief executive roles, and why is
this important?
Answer: Part III, Capital Markets Corporate Governance Guidelines 2003, prescribes best
practices for distinguishing the roles of chairperson and chief executive (often the managing
director). The chairperson leads the board, setting its agenda, ensuring effective meetings, and
overseeing governance, while the chief executive manages daily operations, implementing
board strategies. The guidelines recommend separate individuals for these roles to prevent
power concentration, enhance accountability, and ensure independent oversight. For example,
a chairperson might question the CEO’s budget proposal, maintaining checks and balances. Non-
compliance risks conflicts of interest or unchecked decisions, potentially harming shareholders,
as seen in governance failures like Enron (global context). In Uganda, public companies listed on
the stock exchange must adhere to these guidelines, though private companies may adopt them
voluntarily.
Explanation: Role separation is a cornerstone of modern governance, reducing risks of
mismanagement. The Guidelines align with global standards, reflecting Uganda’s commitment
to robust corporate structures. This question tests your ability to link regulatory frameworks to
governance principles, crucial for public company scenarios in exams.

Appointment of Directors

11. How are the first directors of a company appointed, and what documentation is required?
Answer: Per Article 75, Table A, the first directors are determined in writing by the subscribers
to the Memorandum of Association, typically through a resolution or agreement among the
majority of subscribers during incorporation. Their names and particulars are filed with the
registrar at registration, using Form 19 for public companies, which includes their written
consent to act as directors (Section 190(1)(a), Companies Act, Cap 106). If subscribers fail to
appoint first directors, the Memorandum’s signatories are deemed first directors by default,
ensuring immediate leadership. For example, in a new private company, the founders might
agree that one of them serves as the sole director, documented in the registration forms. Post-
registration, these directors manage until the first AGM or replacement.
 Explanation: The process ensures a company starts with clear leadership, avoiding governance
vacuums. Section 190’s consent requirement for public companies protects against coerced
appointments, while Article 75’s default rule is pragmatic for small entities. This question probes
your knowledge of incorporation mechanics and statutory compliance, often tested for
procedural accuracy.

12. What is the process for appointing subsequent directors, and how does re-election work?
Answer: Under Article 89, Table A, all directors retire at the first annual general meeting (AGM),
and subsequent directors are appointed by an ordinary resolution passed by shareholders at the
AGM or an extraordinary general meeting (EGM), requiring a simple majority (>50%). Article 91,
Table A, allows retiring directors to be eligible for re-election, meaning shareholders can
reappoint them if satisfied with their performance. The process involves issuing a 21-day notice
(Article 50, Table A) specifying the proposed directors, followed by a vote. For instance,
shareholders might elect a new director with financial expertise to replace one who
underperformed. Each director requires a separate resolution unless unanimously agreed
otherwise (Section 190 for public companies). The company notifies the registrar of changes
using Form 20 within 14 days (Section 224(5)).
Explanation: This democratic mechanism ensures shareholder control over leadership,
balancing continuity (re-election) with renewal. The separate resolution rule prevents bundled
appointments, enhancing transparency, especially in public companies. The question tests your
grasp of meeting procedures and statutory timelines, critical for governance questions.

13. Can multiple directors be appointed by a single resolution, and under what conditions?
Answer: Per Section 190, Companies Act, Cap 106, for public companies, appointing two or
more directors via a single (“omnibus”) resolution is prohibited unless the general meeting
unanimously agrees without any opposing vote. This requires a prior resolution confirming no
objections, followed by the appointment vote. For example, at an AGM, shareholders might
propose electing three directors in one motion, but only if all present consent unanimously to
this approach. In private companies, Table A applies similarly unless Articles permit otherwise,
though practice favors separate resolutions for clarity. This rule ensures each director’s
appointment is individually scrutinized, preventing unpopular candidates from being approved
under a collective vote.
Explanation: The restriction safeguards shareholder rights, ensuring deliberate selection.
Unanimity is a high bar, reflecting public companies’ need for transparency due to diverse
investors. This question tests your understanding of procedural fairness, a nuanced governance
issue likely to appear in exams.

14. How are temporary directors appointed, and what is their tenure?
Answer: Under Article 95, Table A, existing directors have the power to appoint temporary
directors to fill casual vacancies (e.g., due to resignation or death) or as additional directors to
the board, without shareholder approval. The appointment is made by a board resolution,
specifying the director’s role and terms. These temporary directors hold office only until the
next AGM, where they must retire but can stand for re-election by shareholders (Article 89). For
instance, if a director resigns mid-year, the board might appoint an expert to fill the gap,
ensuring continuity until the AGM votes on a permanent replacement. The registrar is notified
via Form 20 (Section 224(5)).
 Explanation: This power allows boards to address urgent governance needs flexibly, maintaining
operational stability. The limited tenure ensures shareholder oversight, preventing long-term
appointments without approval. The question assesses your ability to apply Table A to practical
scenarios, a common exam focus.

15. What forms and fees are required to notify the registrar of director appointments?
Answer: Per Section 224(5), Companies Act, Cap 106, a company must notify the registrar of
director or secretary appointments using Form 20, which details the appointee’s particulars
(e.g., name, address, nationality). Changes among directors or secretaries are reported via Form
7, specifying the nature of the change (e.g., appointment, resignation). Both forms must be filed
within 14 days of the change, accompanied by a fee of 20,000/= as per the Finance Act. For
example, if a new director is appointed at an AGM, the company secretary submits Form 20 to
update the public record, ensuring compliance. Failure to file risks fines or legal challenges to
the appointment’s validity.
Explanation: These filings maintain an accurate public register, critical for transparency and
third-party reliance (e.g., creditors). The 14-day deadline underscores urgency, while fees fund
registry operations. This question tests your knowledge of administrative compliance, a
procedural detail often examined.

16. Why is written consent required for directors of a public company, and how is it documented?
Answer: Under Section 190(1)(a), Companies Act, Cap 106, an application to register a public
company must include written consent from individuals agreeing to act as directors,
documented in Form 19. This consent confirms their voluntary commitment, protecting against
unauthorized or coerced appointments. For example, during incorporation, each proposed
director signs Form 19, verifying their willingness to assume fiduciary duties and liabilities. This
requirement applies only to public companies due to their broader accountability to public
investors, ensuring transparency and trust. The form is filed with the registrar alongside the
Memorandum and Articles, forming part of the registration process.
Explanation: Consent safeguards directors and shareholders, aligning with governance
principles of informed participation. Public companies’ stricter rules reflect their exposure to
public scrutiny, unlike private companies’ flexibility. This question probes your understanding of
incorporation nuances, a key exam area for public company governance.

17. What is the legal effect of a defective director appointment, and how does it impact their
actions?
Answer: Per Section 187, Companies Act, Cap 106, the acts of a director or manager remain
valid despite any defect later discovered in their appointment or qualification. For instance, if a
director was appointed without proper shareholder approval but signs a contract, that contract
binds the company, protecting third parties who relied on their authority. This provision applies
to procedural errors (e.g., missing a resolution) or qualification issues (e.g., undisclosed
bankruptcy), ensuring business continuity. However, the company may seek internal remedies,
like removing the director or ratifying the act, and the director could face liability for breaches
during their tenure.
Explanation: Section 187 balances commercial certainty with governance integrity, preventing
technicalities from disrupting transactions. It aligns with Morris v Kanssen (1946) (UK context),
 emphasizing third-party protection. This question tests your ability to apply statutory safeguards
to practical scenarios, a likely exam focus for director liability.

Powers of Directors

18. What is the primary power of directors under Table A, and how does case law support this?
Answer: Under Article 80, Table A, directors are vested with the power to manage the
company’s business, controlling all aspects not expressly reserved for shareholders by the
Companies Act or the Articles. This includes decisions on investments, staffing, or legal actions,
as affirmed in Gramophone and Typewriter Ltd v Stanley (1908) 2 KB 89, where the court held
directors are entrusted with the company’s operational control, acting as its agents. For
example, directors might approve a new factory lease or delegate tasks to a managing director,
subject to shareholder oversight at general meetings. Their actions are valid unless they breach
duties or exceed authority, ensuring efficient governance.
Explanation: Article 80 establishes directors as the company’s operational core, reflecting the
separation of management (directors) and ownership (shareholders). Gramophone reinforces
their autonomy within legal bounds, a principle echoed in John Shaw & Sons (1935). This
question requires you to articulate directors’ scope of authority, a foundational governance
concept in exams.

19. Can a single director institute legal proceedings on behalf of the company, and what case
supports this?
Answer: Yes, a single director, if authorized, can institute legal proceedings without requiring a
board or general meeting resolution, as held in Soon Production Ltd v Soon Yeon Hong and Kim
Dong Yun (HCMA 190/2008). The court clarified that any director with board-delegated
authority can instruct counsel to file suits, such as for breach of contract or debt recovery,
streamlining legal actions. For instance, a managing director might sue a supplier for non-
delivery if empowered by the board, binding the company. This authority stems from Article 80,
Table A, which grants directors broad management powers, including litigation decisions, unless
restricted by the Articles.
Explanation: The Soon Production ruling enhances efficiency, avoiding delays from collective
approvals. It aligns with directors’ agency role under Section 50, Companies Act, ensuring
responsive governance. This question tests your understanding of delegated authority and its
practical implications, a nuanced exam point for corporate litigation.

20. How do directors bind the company as agents, and what case illustrates this principle?
Answer: Under Section 50, Companies Act, Cap 106, directors bind the company as agents
when acting within their actual or ostensible authority, making contracts enforceable against
the company. In Emco Plastica International Ltd v Freeberne (1971) 1 EA 432, the court held
that a contract signed by the managing director was binding because it fell within his ostensible
authority, even if he exceeded specific board limits, as third parties were unaware of internal
restrictions. For example, a director signing a lease agreement binds the company if the
counterparty reasonably believes they have authority. Section 53 further validates documents
executed by directors, reinforcing their agency role.
Explanation: The agency principle protects third parties, promoting commercial trust, as seen in
Royal British Bank v Turquand (1856) (global context). Emco Plastica highlights ostensible
 authority’s scope, critical for exam questions on director powers versus internal limits. You must
explain how external perceptions trump internal constraints, a key governance concept.

21. What is the directors’ power to appoint agents, and how is it legally supported?
Answer: Per Article 81, Table A, and Section 55, Companies Act, Cap 106, directors can appoint
agents by granting power of attorney to execute deeds or perform tasks, binding the company.
Section 55 specifically allows appointing agents for deeds outside Uganda, ensuring global
operations. In B.O.U v Banco Arabe Espanol (2002) 2 EA 333, the court upheld that a duly
signed and sealed power of attorney binds the corporation, as seen when an agent executed a
foreign contract on the company’s behalf. For instance, directors might appoint a lawyer to
negotiate international deals, with the document specifying their scope. This power enhances
efficiency, delegating specialized tasks while retaining oversight.
Explanation: The ability to appoint agents reflects directors’ broad management mandate under
Article 80, crucial for complex operations. B.O.U clarifies the binding effect, aligning with agency
law principles. This question tests your ability to link statutory powers to practical applications, a
frequent exam scenario for international transactions.

22. Can directors borrow money on behalf of the company, and what case supports their
authority?
Answer: Yes, under Article 79(1), Table A, directors can borrow money unless expressly
prohibited by the Articles, binding the company to repay. In Photo Focus Ltd v Mulenga Joseph
(1996) 4 KALR 102, the court held that a director’s loan agreement was valid because the
Articles permitted borrowing, and no restrictions barred the transaction. For example, a director
might secure a bank loan to fund expansion, with the company liable for repayment, even if
shareholders later disagree, provided the director acted within authority. Borrowing often
requires board approval and, for significant amounts, shareholder sanction via an EGM
resolution to ensure transparency.
Explanation: Borrowing powers are vital for financial flexibility, but Photo Focus shows they
hinge on Articles’ terms. Shareholder approval for major loans aligns with governance checks, as
seen in Table A’s meeting provisions. This question requires you to balance director autonomy
with accountability, a core exam theme for financial decisions.

23. What is the directors’ power to authenticate documents, and why is it significant?
Answer: Under Section 56, Companies Act, Cap 106, directors can authenticate documents,
such as contracts or resolutions, ensuring their legal validity for corporate transactions. This
includes affixing the company seal or signing on behalf of the company, as per Article 82, Table
A, particularly for documents used abroad. For instance, a director might authenticate a deed
for a property purchase, binding the company. This power is significant because it establishes
the document’s legitimacy, protecting the company and third parties in disputes. Without
proper authentication, transactions risk being void, as seen in cases requiring formal execution
(e.g., Kintu v Kyotera Growers (1976), implied context).
Explanation: Authentication underpins corporate reliability, ensuring trust in dealings. Section
56’s flexibility (seal or signature) accommodates modern practices, while Article 82 addresses
global needs. This question tests your understanding of procedural formalities, often examined
for their legal impact.
 24. How do directors call company meetings, and what are the procedural requirements?
Answer: Directors call meetings under Article 98, Table A, for board meetings, and Article 49,
Table A, for extraordinary general meetings (EGMs). For board meetings, any director can
summon a meeting, or the secretary does so on a director’s requisition (Article 98(4)), with
notice to all directors ensuring fairness, as in Industrial Coffee Growers (U) Ltd v Tamale (HCCS
215/63). For EGMs, directors convene upon shareholder requisition holding 10% of paid-up
capital (Section 135), issuing a 21-day written notice (Article 50). For example, directors might
call an EGM to approve a merger, specifying the agenda. Failure to give due notice invalidates
proceedings, protecting member rights.
Explanation: Meeting powers reflect directors’ management role, balanced by procedural
safeguards. Industrial Coffee emphasizes notice’s importance, aligning with Section 137’s
quorum rules. This question probes your grasp of governance processes, a staple in exam
scenarios involving meetings.

25. What is the directors’ power regarding the company seal, and how is it applied?
Answer: Per Article 82, Table A, and Section 56, Companies Act, Cap 106, directors control the
use of the company’s official seal to authenticate documents, such as deeds or share
certificates, particularly for use abroad. The seal is affixed by a director’s signature, often
countersigned by the secretary (Article 113), ensuring formal execution. For instance, directors
might seal an international contract to validate it in a foreign jurisdiction, binding the company.
Section 56 allows companies to maintain a seal for overseas use, enhancing global operations.
Improper use risks invalidating documents, as seen in Kintu v Kyotera Growers (1976)
(contextual relevance).
Explanation: The seal symbolizes corporate authority, critical for formal transactions. Article 82
and Section 56 provide procedural clarity, protecting against misuse. This question tests your
ability to apply technical provisions to practical contexts, a common exam focus for corporate
formalities.

Qualifications and Disqualifications of Directors

26. What is the minimum age requirement for a director, and are there exceptions?
Answer: Under Section 192, Companies Act, Cap 106, a director must be at least 18 years old,
ensuring legal capacity and maturity for fiduciary responsibilities. The Articles or other laws (e.g.,
sector-specific regulations) may prescribe a higher minimum age, but Section 192 sets the
baseline. For example, a 17-year-old cannot be appointed, even if qualified otherwise, but a
company’s Articles might require directors to be 25 for added experience. No exceptions lower
the age below 18, as this aligns with contractual capacity under Ugandan law. Acts by an
underage director remain valid per Section 187, protecting third parties.
Explanation: The age requirement balances competence with practicality, reflecting directors’
serious duties. Section 187’s validation clause ensures commercial stability, a principle seen in
Mahony v East Holyford Mining Co (1875) (UK context). This question tests your grasp of
statutory qualifications, often paired with liability issues in exams.

27. What are the grounds for disqualifying a director, and what is the duration of such
disqualification?
 Answer: Section 195, Companies Act, Cap 106, lists grounds for disqualifying a director for three
years, including:

o Failing to keep proper accounting records, risking financial opacity.

o Failing to prepare and file accounts, breaching transparency duties.

o Failing to send returns to the registrar, violating compliance rules.

o Failing to file tax returns or pay taxes, undermining fiscal responsibility.

o Allowing the company to trade while insolvent, harming creditors.

Additionally, Section 196 disqualifies a declared bankrupt indefinitely until discharged.
For example, a director who ignores insolvency warnings and continues trading faces a
three-year ban, protecting stakeholders from reckless governance. Courts may extend
bans for severe breaches, as implied in insolvency cases.
Explanation: Disqualifications deter mismanagement, aligning with fiduciary principles
in Aberdeen Rail Co v Blaike Bros (1843). The three-year term balances punishment
with rehabilitation, while bankruptcy’s indefinite ban reflects its gravity. This question
requires you to detail statutory consequences, a key exam area for director
accountability.

28. What are the consequences if a company fails to file a return of directors, and how is
compliance enforced?
Answer: Per Section 224(5), Companies Act, Cap 106, a company must file a return of directors
within 14 days of appointment or change, using Form 20 for new appointments or Form 7 for
changes, with a 20,000/= fee (Finance Act). Failure to comply risks fines under the Act, potential
legal challenges to the director’s authority, and reputational damage, as third parties rely on the
public register. For instance, if a new director is appointed but not reported, a creditor might
question their legitimacy in a contract dispute. The registrar may issue notices or penalties, and
courts can intervene to enforce compliance, as seen in Re Milton Obote Foundation (1997)
(contextual relevance). The company remains liable for valid acts per Section 187.
Explanation: Timely filing ensures transparency, critical for stakeholder trust. Penalties deter
negligence, while Section 187 protects transactions, aligning with Turquand’s Rule. This
question tests your knowledge of administrative duties, a procedural focus in exams.

29. Why is maintaining a register of directors mandatory, and what are its contents?
Answer: Under Section 224(2), Companies Act, Cap 106, every company must maintain a
register of directors and secretaries, recording their full names, addresses, nationalities,
occupations, and appointment dates. This register, kept at the registered office, is open for
inspection by members and the public, ensuring transparency. For example, a shareholder might
check the register to verify a director’s identity before an AGM vote. The register’s purpose is to
document leadership for accountability, compliance with Section 224(5)’s filing requirements,
and stakeholder scrutiny. Failure to maintain it risks fines or legal disputes, as courts rely on it
for disputes like Matthew Rukikaire v Incafex Ltd. The company secretary typically oversees its
accuracy, per their duties.
Explanation: The register is a governance cornerstone, enabling oversight and legal clarity. Its
 public access aligns with Section 117’s member register rules, reinforcing corporate openness.
This question assesses your understanding of statutory records, often tested for their legal
significance.

Duties and Responsibilities of Directors

30. To whom do directors owe their duties, and how does case law clarify this?
Answer: Directors owe their duties to the company as a whole, not to individual shareholders,
as stipulated in Article 80, Table A, and affirmed in John Shaw & Sons (Salford) Ltd v Shaw
(1935) 2 KB 113. In John Shaw, Greer LJ held that a company is distinct from its shareholders
and directors, with directors exercising management powers vested by the Articles, not subject
to shareholder whims. For example, a director must prioritize the company’s long-term success
(e.g., investing profits) over a shareholder’s demand for immediate dividends. Duties include
acting in good faith and with skill, but shareholders can influence directors only by altering
Articles or voting against re-election, not by usurping their roles. This principle protects the
company’s collective interests, ensuring impartial governance.
Explanation: John Shaw clarifies the governance divide, rooted in Salomon v Salomon’s
separate entity doctrine. Directors’ loyalty to the company prevents favoritism, critical for
diverse shareholders. This question tests your ability to articulate fiduciary principles, a core
exam topic for director accountability.

31. What are the statutory duties of directors under Section 194, and how do they apply
practically?
Answer: Section 194, Companies Act, Cap 106, outlines directors’ duties:

o Promote the company’s success: Act to enhance profitability and sustainability, e.g.,
approving a new product line to boost revenue.

o Exercise reasonable skill and care: Apply diligence as a prudent person would in their
own business, e.g., reviewing financial reports thoroughly before decisions.

o Act in good faith in the company’s interests: This includes:

 Treating shareholders equally, e.g., ensuring fair dividend distributions.

 Avoiding conflicts of interest, per Aberdeen Rail Co v Blaike Bros (1843), e.g.,
not buying company assets personally.

 Declaring conflicts, e.g., disclosing a stake in a supplier before a contract vote.

 Not profiting at the company’s expense, e.g., rejecting secret commissions.

 Not accepting compromising benefits from third parties, e.g., refusing bribes.

o Ensure legal compliance: Adhere to the Companies Act and other laws, e.g., filing
annual returns.
Practically, a director might reject a lucrative but risky deal to avoid insolvency,
balancing profit with prudence. Breaches lead to remedies like damages or profit
disgorgement.
Explanation: Section 194 codifies fiduciary and common law duties, ensuring directors
 prioritize the company’s welfare. Aberdeen’s conflict rule is a global standard,
protecting against self-dealing. This question requires you to apply duties to scenarios, a
frequent exam format for testing practical judgment.

32. What is the rule on conflicts of interest for directors, and how does Aberdeen Rail Co v Blaike
Bros illustrate it?
Answer: The rule, established in Aberdeen Rail Co v Blaike Bros (1843) All ER 249, states that
directors, as fiduciaries, must not enter transactions where their personal interests conflict with
the company’s, unless authorized by shareholders or Articles. In Aberdeen, a director’s contract
to sell his firm’s goods to the company was voidable because his personal stake conflicted with
his duty to secure the best deal for the company, undisclosed to the board. For example, a
director owning a property cannot lease it to the company at an inflated rate without full
disclosure and approval, risking rescission or damages. Section 194(c)(iii), Companies Act,
mandates declaring such conflicts, ensuring transparency. Breaches violate good faith, exposing
directors to liability.
Explanation: Aberdeen is a seminal case, codifying fiduciary integrity in Section 194. Disclosure
and consent mitigate conflicts, balancing business needs with ethics. This question tests your
ability to link case law to statutory duties, a critical exam skill for fiduciary scenarios.

33. How can shareholders control directors’ powers, and what limitations exist?
Answer: In John Shaw & Sons (Salford) Ltd v Shaw (1935) 2 KB 113, Greer LJ held that
shareholders control directors by:

o Altering the Articles: Passing a special resolution (Section 144) to redefine directors’
powers, e.g., limiting borrowing authority.

o Refusing re-election: Voting against directors at the AGM (Article 89), signaling
disapproval of their actions.
However, shareholders cannot usurp directors’ management powers under Article 80,
Table A, nor directly intervene in decisions like hiring or contracts, as these are board
prerogatives. For instance, shareholders dissatisfied with a director’s risky strategy can
vote them out but cannot dictate daily operations. Attempts to override directors
without legal process (e.g., informal demands) are invalid, preserving the governance
divide. Shareholders’ ultimate control lies in winding up the company (Section 245) if
oppression occurs.
Explanation: John Shaw reinforces the separation of powers, ensuring directors manage
while shareholders oversee strategically. Limitations protect operational efficiency, a
balance tested in exams for governance disputes. You must articulate both mechanisms
and constraints clearly.

34. What are the consequences if a director makes personal profits at the company’s expense,
and how is this enforced?
Answer: Section 194(d), Companies Act, Cap 106, prohibits directors from making personal
profits at the company’s expense, a fiduciary duty rooted in cases like Regal (Hastings) Ltd v
Gulliver (1942) (global context). For example, a director diverting a contract opportunity to their
private firm breaches this duty. Consequences include:
 o Accounting for profits: Repaying gains, e.g., profits from a secret deal.

o Rescission: Voiding related contracts, per Aberdeen Rail Co.

o Damages: Compensating the company for losses, e.g., missed opportunities.

Enforcement occurs via shareholder lawsuits, board actions, or registrar investigations
(Section 170). Courts may order restitution, as in Olive Kigongo v Mosa Courts
Apartments (2015) (implied remedies). Directors must disclose opportunities and seek
approval to avoid liability, ensuring loyalty to the company.
Explanation: The prohibition safeguards corporate assets, aligning with Section 194’s
good faith mandate. Enforcement mechanisms empower stakeholders, a key exam topic
for fiduciary breaches. You must detail remedies and processes, showing practical
application.

Other Officers: Company Secretary

35. What is the definition of a company officer, and how does it relate to the secretary’s role?
Answer: Under Section 1, Companies Act, Cap 106, a company officer includes the company
secretary, directors, and other designated officials, reflecting their critical roles in governance.
The secretary, as an officer, is a senior administrative figure responsible for compliance, record-
keeping, and binding the company in administrative matters, per Panorama Development
(Guildford) Ltd v Fidelis Furnishings Fabrics Ltd (1971). Unlike directors, who focus on strategy,
the secretary ensures operational legality, such as filing returns or maintaining registers. For
example, a secretary might certify a board resolution for a bank loan, acting as an officer with
legal authority. Their officer status subjects them to statutory duties and liabilities, like avoiding
fraudulent acts (Section 186).
Explanation: The broad definition underscores the secretary’s elevated role, distinct from
clerical tasks, as modernized in Panorama. Officer status aligns their accountability with
directors, a nuance tested in exams for corporate roles. You must clarify their legal significance
and scope.

36. What qualifications are required to be a company secretary in Uganda, and how does this
flexibility impact companies?
Answer: The Companies Act, Cap 106, imposes no specific qualifications for a company
secretary, unlike jurisdictions requiring certifications (e.g., ICSA in the UK). Companies can
appoint any competent individual, based on skills like administrative expertise, legal knowledge,
or industry experience, as per Article 110, Table A. For instance, a private company might
choose a lawyer as secretary for compliance prowess, while a public company might select an
accountant for financial reporting. This flexibility allows tailoring to company needs but risks
appointing underqualified individuals, potentially leading to errors like missed filings. The
absence of mandatory qualifications contrasts with directors’ stricter rules (Section 192),
emphasizing the secretary’s administrative focus.
Explanation: Flexibility suits Uganda’s diverse corporate landscape, from SMEs to listed firms,
but demands diligence in selection. The lack of statutory criteria shifts responsibility to boards, a
governance issue tested in exams for comparative roles. You must highlight practical
implications and risks.
37. Who is disqualified from being a company secretary, and what are the legal consequences?
Answer: Under Section 186, Companies Act, Cap 106, a person convicted of an offence related
to company affairs (e.g., fraud, falsifying records) is disqualified from being a secretary for up to
five years from conviction. For example, a secretary convicted of embezzling company funds
cannot serve during this period, ensuring integrity in a sensitive role. Disqualification prevents
them from binding the company or accessing records, protecting stakeholders. Violations risk
fines or imprisonment for the individual and company, and courts may invalidate their acts
unless protected by Section 187 (for directors, implied analogy). The company must appoint a
replacement promptly, notifying the registrar via Form 20.
Explanation: Section 186 safeguards corporate trust, aligning with Section 195’s director
disqualifications. The five-year cap balances punishment with rehabilitation, a principle seen in
insolvency laws. This question tests your grasp of statutory protections, often paired with
compliance scenarios in exams.

38. How is a company secretary appointed, and what powers do directors have over their tenure?
Answer: Per Article 110, Table A, the board appoints the company secretary by resolution,
determining their term, remuneration, and conditions as they see fit. For instance, directors
might appoint a secretary for two years at a fixed salary, with duties like managing filings. The
board retains the power to remove the secretary at any time, without shareholder approval, by
another resolution, ensuring flexibility. This might occur if the secretary fails to file returns,
risking penalties. The appointment is recorded in the register of secretaries (Section 224(2)), and
changes are reported via Form 20 within 14 days (Section 224(5)). Unlike directors, secretaries
have no statutory election process, reflecting their subordinate role.
Explanation: Article 110 empowers directors to align the secretary’s role with company needs,
reflecting their management authority under Article 80. Removal power ensures accountability,
critical for compliance. This question assesses your understanding of board discretion, a
procedural focus in exams.

39. What is the authority of a company secretary to bind the company, and how has case law
evolved this role?
Answer: In Panorama Development (Guildford) Ltd v Fidelis Furnishings Fabrics Ltd (1971) 3
WLR 12, the Court of Appeal held that a company secretary has usual authority to bind the
company in administrative contracts, such as hiring cars or leasing office equipment, reflecting
their modern role as a senior officer. Lord Denning noted that secretaries are no longer mere
clerks but key figures making representations and entering contracts daily. For example, a
secretary ordering supplies for board meetings binds the company, even if acting fraudulently,
as in Panorama, where the company was liable for car hire costs despite the secretary’s misuse.
This authority stems from ostensible power, not requiring board approval for routine matters,
per Section 57, Companies Act, which allows secretaries to authenticate documents.
Historically, secretaries had limited roles, but Panorama modernized their status, aligning with
Article 110’s broad appointment scope.
Explanation: Panorama transformed the secretary’s legal standing, emphasizing their
operational significance. The case aligns with Section 50’s agency principles for directors,
extending trust to secretaries. This question requires you to trace legal evolution and apply it to
scenarios, a sophisticated exam topic for officer roles.
40. What are the specific duties of a company secretary, and how do they support corporate
governance?
Answer: The company secretary’s duties, per the textbook and Companies Act, Cap 106,
include:

o Preparing minutes: Recording proceedings of general and board meetings in books

(Section 148), ensuring legal evidence, as in Cairney v Back (1906) 2 KB 746. E.g.,
minutes of an AGM approving dividends validate payouts.

o Writing letters: Authoring official correspondence, presumed authorized unless proven

otherwise (Johnson v Lyttles Ison Agency (1877)). E.g., notifying shareholders of
meetings.

o Certifying share transfers: Verifying transfers for registration (Section 88(3)(b)), as in Re

Fredrick Slobart and Co (1902). E.g., certifying a shareholder’s sale to update the
register.

o Custody of the company seal: Safeguarding and applying the seal to documents (Article
113, Table A). E.g., sealing a deed for a loan agreement.

o Receiving summons: Accepting legal documents on behalf of the company (O.26 R.2).
E.g., receiving a court notice for a debt claim.

o Authenticating documents: Signing to validate records (Section 57). E.g., certifying a

board resolution for a bank.

o Filing resolutions and returns: Submitting annual returns and resolutions to the
registrar within 42 days (Section 132). E.g., filing an AGM’s dividend resolution.
These duties ensure compliance, transparency, and accurate records, supporting
governance by enabling shareholder oversight, legal adherence, and operational clarity.
Explanation: The secretary is the governance linchpin, bridging legal requirements and
operations. Each duty reinforces statutory obligations, preventing disputes like those in
Matthew Rukikaire v Incafex. This question tests your ability to detail roles and their
impact, a comprehensive exam requirement.

41. Can a secretary act as both director and secretary for the same act, and what are the
implications?
Answer: Under Section 183, Companies Act, Cap 106, a person cannot perform an act required
of both a director and secretary in both capacities simultaneously. For example, when signing
annual returns (Section 132), which require both a director’s and secretary’s signatures, the
same person cannot sign twice. If no other director is available, the secretary must delegate
their role to another person, as permitted by the Articles, ensuring distinct accountability. This
rule prevents conflicts and ensures checks, as a single individual could otherwise monopolize
decisions. Violations risk invalidating the act (e.g., a return being rejected) and penalties for non-
compliance. The company must maintain clear role separation, notifying the registrar of dual
roles via Form 20 if applicable.
Explanation: Section 183 safeguards governance integrity, aligning with Section 190’s director
 consent rules. It reflects the secretary’s subordinate yet critical role, a nuance tested in exams
for procedural compliance. You must explain the rule’s purpose and consequences clearly.

42. What was the significance of the Panorama Development case for the company secretary’s
role, and how does it apply today?
Answer: In Panorama Development (Guildford) Ltd v Fidelis Furnishings Fabrics Ltd (1971) 2
QB 711, the Court of Appeal redefined the company secretary’s role, holding they have
ostensible authority to bind the company in administrative contracts. The secretary fraudulently
hired cars, purportedly for company use, but the court ruled the company liable, as the hire fell
within the secretary’s usual authority. Lord Denning emphasized that modern secretaries are
senior officers, not clerks, with extensive duties like entering contracts and making
representations, as seen when a secretary might lease office space. This overturned earlier
views (e.g., Barnett v South London Tramways (1887), implied context), aligning with Section
57, Companies Act, which allows secretaries to authenticate documents. Today, secretaries in
Uganda bind companies in routine matters (e.g., supplier agreements), but fraud beyond
authority (e.g., personal loans) may limit liability, per agency principles.
Explanation: Panorama modernized the secretary’s legal status, reflecting their operational
importance in Article 110’s flexible appointment. It remains authoritative, guiding liability in
administrative acts. This question tests your ability to trace legal evolution and apply it to
current law, a sophisticated exam angle.

43. How does a secretary prepare minutes, and why is this duty legally significant?
Answer: Per Section 148, Companies Act, Cap 106, and Cairney v Back (1906) 2 KB 746, the
secretary prepares minutes of all general and board meetings, recording resolutions,
proceedings, and attendees in books kept for that purpose. The process involves noting key
decisions (e.g., dividend approvals), debates, and votes accurately, often during the meeting,
and finalizing them post-meeting for director approval. For example, minutes of an AGM
appointing auditors validate their engagement. Section 148(3) deems meetings duly held if
minutes comply, providing legal evidence. Minutes must be signed by the chairperson and
secretary, stored securely, and available for inspection (Section 152). Their significance lies in
proving compliance, resolving disputes (e.g., contested resolutions), and supporting audits or
litigation, as in Matthew Rukikaire v Incafex. Failure risks penalties or invalidation of decisions.
Explanation: Minutes are the company’s historical record, critical for transparency and
accountability. Section 148’s presumption of validity protects stakeholders, aligning with
Cairney’s emphasis on accuracy. This question tests your grasp of procedural duties, a frequent
exam focus for governance records.

Representatives of Corporations

44. Can a corporation appoint a representative to act on its behalf at company meetings, and how
is this authorized?
Answer: Yes, under Section 144, Companies Act, Cap 106, and Article 74, Table A, a corporation
that is a member of another company can authorize a person to act as its representative at
general meetings by a resolution of its board or governing body. The resolution specifies the
representative’s name and powers, filed with the company’s records. For example, a corporate
shareholder like a bank might appoint its CEO to attend an AGM, voting on dividend
 declarations. The representative exercises the corporation’s full rights, such as proposing
resolutions or demanding polls, as if an individual shareholder. This ensures corporate members
participate fully, with the resolution serving as legal proof of authority, verifiable by the
company secretary.
Explanation: Section 144 enables corporate investment without governance barriers, reflecting
Table A’s practical approach. The resolution requirement ensures clarity, preventing
unauthorized acts. This question tests your understanding of shareholder mechanics, a niche but
testable exam area.

45. What powers does a corporate representative have at company meetings, and how do they
compare to individual shareholders?
Answer: Per Section 144, Companies Act, Cap 106, a corporate representative authorized by a
board resolution can exercise all powers the corporation would have as an individual
shareholder, including voting, speaking, proposing resolutions, and demanding polls at general
meetings. For instance, a representative from a corporate shareholder might vote against a
director’s re-election, mirroring an individual’s rights under Section 137(e) (one vote per share).
Unlike proxies, who are limited in private companies (Section 139), representatives have full
participatory rights, including speaking, unless Articles restrict. Their powers are tied to the
corporation’s shareholding, ensuring proportional influence, as in Article 62, Table A. The
company verifies their authority via the resolution, ensuring legitimacy.
Explanation: Section 144 equalizes corporate and individual shareholders, promoting inclusive
governance. The distinction from proxies highlights their broader role, a nuance tested in exams
for meeting dynamics. You must clarify their scope and legal basis clearly.

Meetings

46. What is the role of directors in company meetings, and how does it interact with shareholder
authority?
Answer: Under Article 80, Table A, directors manage company meetings for matters within their
purview, such as presenting reports or proposing resolutions, while shareholders hold ultimate
control via general meetings for reserved matters (e.g., altering Articles). Directors convene
board meetings (Article 98) to decide operational issues like budgets, and EGMs (Article 49) for
shareholder approvals like major loans. For example, directors might call an EGM to ratify a
merger, presenting their rationale. However, shareholders decide reserved issues, like director
appointments (Section 134), and can override directors by special resolutions (Section 144).
John Shaw & Sons (1935) clarifies that directors exercise management powers independently,
but shareholders control via Articles or elections, ensuring a balance. Failure to convene
required meetings risks penalties (Section 134(8)).
Explanation: The interplay reflects the governance divide, with directors as agents and
shareholders as principals. Article 80’s delineation prevents overreach, a principle tested in
exams for meeting authority disputes. You must articulate both roles and their limits.

47. What is an extraordinary general meeting (EGM), and what are the legal requirements for
convening one?
Answer: An extraordinary general meeting (EGM), per Section 135, Companies Act, Cap 106, is
a meeting outside the AGM to address urgent or special matters, like amending Articles or
 approving major transactions. Directors must convene an EGM upon requisition by members
holding at least 10% of paid-up capital, who submit a signed requisition stating the meeting’s
objects (e.g., removing a director), deposited at the registered office (Section 135(2)). Directors
issue a 21-day written notice (Section 137(A), Article 50, Table A), specifying the agenda, to all
members. If directors fail to act, requisitionists can convene it themselves (Section 135). For
example, shareholders might requisition an EGM to approve a sale of assets, with notice
detailing the proposal. Indian Corridor v Golden Plus (2008) mandates compliance with
requisitions, ensuring shareholder rights.
Explanation: EGMs enable responsive governance, balancing director control with member
influence. Section 135’s requisition process empowers shareholders, a safeguard tested in
exams for meeting procedures. You must detail statutory steps and their purpose.

48. What are the notice requirements for an EGM, and what happens if they are not followed?
Answer: Per Section 137(A), Companies Act, Cap 106, and Article 50, Table A, an EGM requires
at least 21 days’ written notice to every member, specifying the date, place, time, and agenda,
signed by the secretary or directors. Article 51 states that accidental omissions (e.g., missing one
member’s notice) do not invalidate proceedings, but deliberate or systemic failures, like
excluding key shareholders, may render the meeting void, as in Industrial Coffee Growers (U)
Ltd v Tamale (HCCS 215/63). For instance, a notice for an EGM to approve a loan must detail the
loan’s terms. Shorter notices are allowed if all members agree (Section 136(4)). Non-compliance
risks court challenges or registrar intervention (Section 138), protecting member rights.
Explanation: Notice ensures informed participation, a democratic cornerstone. Article 51’s
leniency balances practicality with fairness, while Industrial Coffee underscores due process.
This question tests your grasp of procedural compliance, a critical exam area for meetings.

49. What is the quorum for a private company’s general meeting, and why is it important?
Answer: Under Section 137(c), Companies Act, Cap 106, the quorum for a private company’s
general meeting is two members personally present, unless the Articles specify otherwise (e.g.,
a higher number). Article 53(1), Table A, mandates that no business is transacted without a
quorum at the meeting’s start, ensuring decisions reflect sufficient shareholder input. For
example, an EGM to alter Articles requires at least two members to proceed legally, preventing
unilateral actions. If no quorum exists, the meeting adjourns, and prolonged failure may trigger
court-ordered meetings (Section 138). The quorum’s importance lies in validating resolutions,
protecting minority rights, and ensuring corporate legitimacy, as seen in Re El-Sombrero (1958).
Explanation: The quorum requirement balances efficiency with representation, critical for
private companies’ small memberships. Section 137(c)’s default rule is practical, tested in exams
for meeting validity. You must explain its role in governance and consequences of non-
compliance.

50. What type of business is transacted at an EGM, and how does it differ from an AGM?
Answer: Per Article 52, Table A, all business at an extraordinary general meeting (EGM) is
deemed special, requiring specific resolutions (e.g., ordinary or special) for matters like altering
Articles, approving mergers, or removing directors. For instance, an EGM might pass a special
resolution to change the company’s name, needing a 75% majority (Section 144). In contrast, an
AGM, per Section 134(1), handles routine business like reviewing accounts, declaring dividends,
appointing auditors, and electing directors, alongside any special resolutions. EGMs are ad hoc,
 addressing urgent issues, while AGMs are mandatory annual reviews. Article 48 clarifies that
non-AGM general meetings are EGMs, ensuring focused agendas. Failure to specify business
risks invalidity, as in Tressen v Henderson (1899).
Explanation: The distinction reflects EGMs’ targeted role versus AGMs’ broad oversight, a
governance nuance. Section 144’s resolution rules add complexity, tested in exams for meeting
purposes. You must contrast their scopes clearly, highlighting procedural differences.

51. What is the purpose of an annual general meeting (AGM), and what business is typically
conducted?
Answer: Under Section 134(1), Companies Act, Cap 106, an annual general meeting (AGM) is
held yearly, within 15 months of the last AGM, to review the company’s performance and
governance. Article 47, Table A, outlines typical business:

o Receiving profit and loss accounts, ensuring financial transparency.

o Reviewing directors’ reports, assessing management performance.

o Declaring final dividends, rewarding shareholders.

o Appointing directors, replacing retirees (Article 89).

o Appointing auditors and fixing their remuneration (Section 163(1)).

o Considering special business, like amending Articles via special resolution.

For example, an AGM might approve a 5% dividend and re-elect a director, with notice
specifying these items (Article 50). Directors call AGMs, but members can requisition
them, ensuring accountability. Igara Growers Tea Factory (2024) allowed deferral for
financial constraints, but non-compliance risks fines (Section 134(8)).
Explanation: AGMs are governance cornerstones, balancing shareholder rights with
legal duties. Section 134’s timeline ensures regularity, while Igara shows flexibility. This
question tests your ability to detail statutory purposes, a staple exam topic for meeting
roles.

52. What are the consequences of failing to hold an AGM, and how can this be rectified?
Answer: Per Section 134(8), Companies Act, Cap 106, failing to hold an AGM within 15 months
of the last is an offence, attracting criminal sanctions like fines for directors or the company. This
undermines shareholder oversight, risking disputes, as in Re El Sombrero (1958) Ch 900, where
non-compliance led to court intervention. Section 134(4) allows any member to apply to the
registrar to convene an AGM, who may direct its conduct, including setting a one-person
quorum or modifying procedures. For example, if directors delay due to internal conflicts, a
shareholder can petition the registrar, who orders a meeting with clear terms. Courts may also
intervene under Section 138, ensuring governance. Persistent failure risks winding-up petitions
(Section 245).
Explanation: Section 134 enforces accountability, protecting shareholders from neglect. El
Sombrero illustrates judicial remedies, a principle echoed in Igara Growers. This question
requires you to outline penalties and solutions, testing statutory remedies, a common exam
focus.
53. Can an AGM be deferred, and what precedent supports this flexibility?
Answer: Yes, an AGM can be deferred for sufficient cause, as held in In the Matter of an
Application for an Order Deferring the Convening the Annual General Meeting of Igara
Growers Tea Factory Limited (Misc Cause No.82 of 2024). The High Court ruled that lack of
funds to conduct an AGM constitutes sufficient cause, allowing postponement beyond Section
134(1)’s 15-month limit. For instance, a company facing financial distress might delay its AGM to
secure resources, applying to the registrar or court for approval. However, deferral requires
justification, and prolonged delays risk penalties (Section 134(8)) or member petitions for court-
ordered meetings (Section 138). The company must notify members and the registrar, ensuring
transparency.
Explanation: Igara Growers balances statutory rigidity with practicality, reflecting Uganda’s
economic realities. Section 134’s enforcement mechanisms ensure eventual compliance. This
question tests your ability to apply recent case law to statutory rules, a nuanced exam area for
governance flexibility.

54. What is a court-ordered meeting, and under what circumstances is it invoked?

Answer: Under Section 138, Companies Act, Cap 106, a court can order a meeting on
application by any director or member when holding one under the Articles or Act is
impracticable, such as due to deadlocks or disputes. In Re El-Sombrero Ltd (1958) 3 All ER 1, the
court ordered a meeting when shareholders couldn’t convene one due to internal conflicts,
setting terms like quorum or agenda. For example, if two equal shareholders block an EGM, a
director can petition the High Court, which may direct a single-member quorum to resolve the
impasse. The court’s powers include modifying procedures, ensuring governance continuity.
Such orders override Articles, prioritizing statutory compliance and member rights.
Explanation: Section 138 is a safety valve for governance crises, aligning with El-Sombrero’s
equitable approach. It protects stakeholders from paralysis, a scenario tested in exams for
dispute resolution. You must detail triggers and judicial powers, showing practical application.

55. What are the duties of a chairperson at a company meeting, and how do they ensure effective
governance?
Answer: Per the textbook, the chairperson’s duties at general or board meetings include:

o Preserving order: Managing disruptions, e.g., silencing unruly shareholders to focus on

the agenda.

o Ensuring proper conduct: Following the Articles and Act, e.g., adhering to notice periods
(Section 136).

o Giving fair hearing: Allowing all views, e.g., letting minority shareholders debate a
resolution.

o Accurately recording outcomes: Ensuring minutes reflect decisions, e.g., verifying a

special resolution’s vote count.
The chairperson, typically a director (Article 55, Table A), may have a casting vote
(Article 60) to break ties, as in an EGM deadlock. For instance, they might rule on a poll
demand’s validity, ensuring procedural fairness. These duties uphold democratic
governance, prevent bias, and validate resolutions, as seen in Tressen v Henderson
 (1899)’s notice emphasis. Failure risks challenges to meeting validity, requiring registrar
or court intervention (Section 138).
Explanation: The chairperson’s role is pivotal, ensuring meetings reflect shareholder will
while complying with law. Table A’s rules standardize conduct, tested in exams for
meeting dynamics. You must link duties to governance outcomes, a practical exam
requirement.

Voting and Proxies

56. How is voting conducted at company meetings, and what rules govern shareholder rights?
Answer: Under Section 137(e), Companies Act, Cap 106, and Article 62, Table A, in companies
with share capital, each shareholder has one vote per share held, ensuring proportional
influence. Voting typically occurs by show of hands, but a poll can be demanded for accuracy
(Article 58), reflecting share-based votes. Proxies vote only on polls in private companies, unless
Articles allow broader rights (Section 139(c)). For example, a shareholder with 1,000 shares has
1,000 votes on a poll, outweighing a 100-shareholder’s vote. Northwest Transportation Co Ltd v
Beatty (1857) held that shareholders vote freely, even with personal interests, unless oppressive
(Section 245). The chairperson declares results, with casting votes in ties (Article 60). Invalid
votes (e.g., unqualified members) risk resolution challenges, requiring court rectification
(Section 123).
Explanation: Voting rules balance democracy with shareholding weight, critical for resolutions.
Beatty’s freedom principle prevents undue restrictions, tested in exams for shareholder rights.
You must detail procedures and safeguards, showing procedural depth.

57. What is a proxy, and what are their rights and limitations in a private company?
Answer: Per Section 141, Companies Act, Cap 106, a proxy is a person appointed by a member
to attend and vote at a meeting on their behalf, whether a member or not. In private
companies, Section 139(1) grants proxies the right to speak at meetings, unlike public
companies, but they can only vote on a poll, not a show of hands, unless Articles provide
otherwise (Section 139(c)). A member cannot appoint multiple proxies for one meeting (Section
139(b)), and proxies don’t apply to non-share capital companies (Section 139(a)). For example, a
shareholder might appoint a lawyer as proxy to vote on a director’s removal, speaking at the
EGM but voting only if a poll is called. Limitations ensure proxies don’t dominate, preserving
direct member influence. Invalid appointments risk vote rejection, per Article 58.
Explanation: Proxies enable participation for absent members, but Section 139’s restrictions
prevent abuse in private companies. The poll limitation balances proxy power, tested in exams
for meeting mechanics. You must clarify rights versus constraints, a nuanced governance issue.

58. When can a poll be demanded at a meeting, and what is its significance?
Answer: Under Article 58, Table A, a poll can be demanded before or after a show of hands by
the chairperson, a specified number of members (per Articles), or shareholders with sufficient
voting rights, ensuring accurate vote counts based on shares. For instance, at an EGM, a major
shareholder might demand a poll to reflect their 1,000 shares against a minority’s 100,
overriding a show of hands. The poll’s significance lies in precision, critical for contentious issues
like special resolutions (Section 144), preventing miscounts. Section 139(c) restricts proxies to
poll voting, amplifying its role. Results are binding, recorded in minutes (Section 148), and
 challenges require court action (Section 123). Tressen v Henderson (1899) implies proper
procedures are essential for validity.
Explanation: Polls ensure equitable voting, reflecting shareholding weight, a democratic
safeguard. Article 58’s flexibility accommodates disputes, tested in exams for voting accuracy.
You must explain triggers and impacts, showing procedural mastery.

Resolutions

59. What is an ordinary resolution, and when is it used in company governance?

Answer: An ordinary resolution, though not defined in the Companies Act, Cap 106, is passed by
a simple majority (>50%) of members present and voting at a general meeting, per Section 145.
It requires no specific notice unless following a special notice (e.g., auditor removal, Section
163). Ordinary resolutions are used for routine decisions where the Act or Articles don’t
mandate special resolutions, such as appointing directors (Article 89), approving dividends
(Section 134), or authorizing minor transactions. For example, an AGM might pass an ordinary
resolution to re-elect a director, needing only a majority vote after 21 days’ notice (Article 50).
Amendments are allowed post-notice, enhancing flexibility. Anything achievable by ordinary
resolution can be done by special resolution, but not vice versa. Northwest Transportation v
Beatty (1857) supports shareholder voting freedom.
Explanation: Ordinary resolutions are governance workhorses, balancing ease with member
control. Section 145’s lack of notice rigidity suits routine matters, tested in exams for resolution
types. You must detail uses and procedural ease, showing practical application.

60. What is a special resolution, and what are its statutory requirements and consequences?
Answer: Under Section 144, Companies Act, Cap 106, a special resolution is passed by at least a
75% majority of members entitled to vote at a general meeting, with notice specifying the
resolution’s intent as special, given at least 21 days prior (Section 136). It’s used for significant
changes, like amending Articles (Section 16), changing the company’s name (Section 35), or
reducing share capital (Section 66). For example, an EGM might pass a special resolution to
convert a public company to private, requiring precise notice wording. The chairperson’s
declaration of passage is conclusive unless a poll is demanded (Section 144). Within 30 days,
three copies are filed with the registrar (Section 148), costing 20,000/= (Finance Act 2013). Late
filing incurs a 100,000/= fine (Section 148), but registration remains possible with extra fees
(Section 273). Amendments correct only typographical errors, preserving the resolution’s
substance, as in Tressen v Henderson (1899).
Explanation: Special resolutions ensure broad consensus for major decisions, reflecting Section
144’s high threshold. Filing enforces transparency, tested in exams for statutory compliance.
You must outline requirements, uses, and penalties, showing procedural depth.

61. What is the penalty for late filing of a special resolution, and how is late registration handled?
Answer: Per Section 148, Companies Act, Cap 106, a special resolution must be filed with the
registrar within 30 days of passage, failing which the company and officers in default face a fine
of 5 currency points (100,000/=). Section 273 clarifies that the filing duty continues beyond 30
days, allowing late registration upon payment of additional prescribed fees, ensuring the
resolution’s legal effect. For example, if an EGM’s resolution to amend Articles is filed on day 40,
the registrar accepts it with extra fees, avoiding invalidity. The company secretary typically
 handles filing, using three copies (Finance Act 2013, 20,000/= fee). Persistent failure risks
registrar sanctions or court orders (Section 138), and courts may uphold the resolution’s validity
per Section 187’s analogy for acts.
Explanation: Section 273’s flexibility mitigates strict deadlines, balancing compliance with
practicality. Fines deter negligence, a governance principle tested in exams for filing duties. You
must explain penalties and remedies, showing administrative nuance.

62. What is an extraordinary resolution, and how does it relate to special resolutions under the
Companies Act?
Answer: An extraordinary resolution, per the textbook, historically required a 75% majority with
notice specifying its intent, similar to a special resolution, for matters like winding up or major
restructurings. However, upon the Companies Act, Cap 106’s enactment, any matter requiring
an extraordinary resolution is validly done by a special resolution, effectively merging the two.
For example, an EGM to approve voluntary liquidation, once needing an extraordinary
resolution, now uses a special resolution under Section 144, with 21 days’ notice and registrar
filing (Section 148). The distinction is obsolete, but Articles predating the Act might reference
extraordinary resolutions, resolved as special ones. Section 144’s 75% threshold and procedural
rules apply uniformly, ensuring clarity.
Explanation: The merger simplifies governance, aligning with Section 144’s standardization.
Historical references may linger, tested in exams for transitional rules. You must clarify
obsolescence and current practice, showing statutory evolution.

63. What is a board resolution, and how is it passed during a board meeting?
Answer: A board resolution is a formal decision by directors at a board meeting, per Articles 98–
106, Table A, addressing matters like borrowing, appointing agents, or calling EGMs. Article 98
allows directors to convene meetings, with questions decided by a majority vote (Article
104(2)). For example, a resolution to borrow 50 million shillings requires most directors’
approval, recorded in minutes (Article 86(c)). The chairperson may have a casting vote in ties
(Article 104), and a quorum (default two, Article 99) is mandatory. Notice must reach all
directors (Industrial Coffee Growers (1963)), and informal agreements may suffice if unanimous
(UK Safety Group Ltd v Heane (1998)). Resolutions are signed in a minute book, binding the
company, and significant ones (e.g., borrowing) may need shareholder ratification via EGM.
Explanation: Board resolutions operationalize Article 80’s management powers, ensuring
collective action. UK Safety’s informality option adds flexibility, tested in exams for board
dynamics. You must detail procedures and legal effects, showing governance mechanics.

Shareholders and Membership

64. What is a share, and how does it differ from share capital, with reference to case law?
Answer: A share, per Bradbury v English Sewing Cotton Company Ltd (1923) AC 744, is a
fractional part of a company’s share capital, representing a member’s individual property and
contribution to the company’s funds. Share capital, conversely, is the aggregate value of all
shares issued, owned by the company as a collective asset, used for operations. For example, a
shareholder owning 100 shares of 1,000/= each holds 100,000/= in shares, while the company’s
share capital might be 10 million/= from all shareholders. Shares confer rights like dividends or
voting (Section 137(e)), while share capital supports liabilities, as in Article 2, Table A. Bradbury
 clarified that shares are personal assets, transferable independently, unlike capital, which funds
corporate purposes. Confusion risks misinterpreting ownership versus company wealth.
Explanation: Bradbury’s distinction is foundational, guiding rights and liabilities. Shares’
individuality versus capital’s collectivity is tested in exams for shareholder disputes, requiring
clear differentiation. You must link case law to statutory roles, showing conceptual depth.

65. Who is eligible to be a shareholder under the Companies Act, and what are the practical
implications?
Answer: The Companies Act, Cap 106, imposes no specific restrictions on shareholder eligibility,
allowing minors, personal representatives, trustees in bankruptcy, companies, and individuals to
hold shares, per the textbook. Article 2, Table A, permits companies to issue shares with
tailored rights, enabling broad participation. For example, a minor might inherit shares, holding
them without liability until adulthood (Mawogola Farmers v Kayanja (1971)), while a company
might invest as a corporate shareholder, appointing representatives (Section 144). Practically,
this inclusivity encourages investment, as in family businesses where relatives hold non-voting
shares. However, minors’ limited capacity requires guardians, and corporate shareholders need
resolutions, adding complexity. Restrictions may arise from Articles (e.g., transfer limits),
ensuring control.
Explanation: The Act’s openness fosters economic participation, but practical challenges like
minor liability or corporate governance arise, tested in exams for membership rules. You must
highlight flexibility and constraints, showing real-world impacts.

66. What are the types of shares recognized under the Companies Act, and what are their key
characteristics?
Answer: The Companies Act, Cap 106, and the textbook outline several types of shares, each
with distinct characteristics to suit diverse investor needs:

 Ordinary Shares: These have no special rights or restrictions, offering standard voting rights
(one vote per share, Section 137(e)) and dividends based on profits. They carry higher risk, as
holders are last to receive payments in liquidation, but offer potential for higher returns. For
example, an ordinary shareholder might vote at an AGM to elect directors, with dividends
varying annually.

 Preferential Shares: These grant priority in dividend payments, often at a fixed rate, and in
capital repayment during winding up, per Article 2, Table A. Dividends may be cumulative,
accruing if unpaid, or non-cumulative. For instance, a 5% preference shareholder receives
dividends before ordinary shareholders, ensuring stability for risk-averse investors.

 Redeemable Shares: Per Section 66, Companies Act, these can be repurchased by the company
at a fixed time or on notice, offering flexibility. They must be fully paid up before redemption to
protect creditors. A company might issue redeemable shares to raise temporary capital,
redeeming them after a project, reducing long-term obligations.

 Redeemable Preference Shares: Combining preference and redeemability, these offer fixed
dividends and priority, with the option for company buyback. For example, a company might
issue 6% redeemable preference shares, paying dividends first and redeeming them after five
years, appealing to cautious investors.
 Deferred Shares: Typically issued to founders, these have rights (e.g., dividends) deferred until
other classes are paid, as specified in the Articles. For instance, a founder might hold deferred
shares receiving dividends only after preference shareholders, incentivizing long-term
commitment.

 Employee Shares: Per Section 61(2)(b), these are issued under employee share schemes, often
non-voting to limit influence. An employee might receive shares as a bonus, fostering loyalty
without granting board control.

 Non-Voting Shares: These carry no voting rights except for specific matters (e.g., winding up),
allowing capital raising without diluting control. For example, a family business might issue non-
voting shares to external investors, retaining decision-making power.
Each type is governed by the Articles, which define rights like voting or dividend priority,
ensuring transparency. Bradbury v English Sewing Cotton Company Ltd (1923) AC 744 clarifies
shares as individual property, distinct from collective share capital, guiding their legal treatment.
Explanation: The variety of shares enables companies to tailor capital structures, balancing
investor appeal with governance control. Section 66’s redemption rules and Section 61’s
employee provisions reflect statutory flexibility, while Bradbury underscores ownership rights.
This question tests your ability to categorize shares and explain their strategic use, a common
exam focus for corporate finance and governance. You must detail each type’s legal and
practical implications, showing how they align with company objectives and investor
expectations.

67. Who is a member of a company, and how is membership legally established?

Answer: Under Section 45, Companies Act, Cap 106, a member (or shareholder) of a company is
either: (a) a subscriber to the Memorandum of Association, automatically entered in the register
of members at registration, or (b) a person who agrees to become a member and whose name is
entered in the register of members, typically after purchasing or inheriting shares. For example,
a founder signing the Memorandum becomes a member upon incorporation, while an investor
buying shares from an existing member becomes a member once their name is recorded.
Membership is formalized by entry in the register of members (Section 117), which serves as
prima facie evidence of ownership, as affirmed in Matthew Rukikaire v Incafex Ltd (HCCS
114/1997). The process involves issuing a share certificate (Section 88) and updating the register
after board approval of share transfers, ensuring legal recognition. Membership grants rights
like voting (Section 137(e)), receiving dividends, and inspecting records (Section 152), but also
obligations, such as paying unpaid share amounts (Section 47). Minors or corporations can be
members, though minors’ voting may be restricted until adulthood, per general contract law
principles.
Explanation: Section 45 establishes a clear legal framework for membership, distinguishing
subscribers (automatic members) from subsequent shareholders (consensual entry). Rukikaire
emphasizes the register’s evidential role, critical for resolving disputes over ownership, such as
in transfer conflicts. The question tests your understanding of membership’s legal foundation
and procedural formalities, a foundational topic in exams often linked to shareholder rights or
disputes. You must articulate how membership is initiated and documented, highlighting its
significance for corporate governance and stakeholder relations.
68. How can membership in a company be proven, and what evidence is admissible in disputes?
Answer: Membership is primarily proven by the company’s register of members, which, under
Section 117, Companies Act, Cap 106, serves as prima facie evidence of a person’s status as a
shareholder, listing their name, address, and shareholding details. However, courts accept
additional evidence to establish membership, as clarified in Mawogola Farmers and Growers
Ltd v Kayanja (1971) EA 272 and Lutaaya v Gandesha (1985) HCB 46. Admissible evidence
includes:

 Share Certificates: Issued under Section 88, these confirm ownership, e.g., a certificate showing
100 shares validates a claim.

 Annual Returns: Filed with the registrar (Section 132), these list members, supporting register
entries.

 Company Correspondence: Letters acknowledging shareholdings, like dividend notices, indicate

membership.

 Witness Testimony: Directors or secretaries may confirm share allocations, as in Rukikaire v

Incafex.

 Payment Records: Proof of payment for shares, such as bank receipts, corroborates claims,
especially for subscribers.
For instance, if the register omits a shareholder due to clerical error, a share certificate and
dividend receipt can prove membership in court. Mawogola held that the register is not
conclusive if contradicted by credible evidence, protecting genuine members from
administrative oversights. Courts may order register rectification under Section 123 if disputes
arise, ensuring fairness. This flexibility prevents injustice, particularly in family businesses or
small companies with informal records.
Explanation: The register’s prima facie status balances legal certainty with equitable remedies,
as seen in Mawogola and Lutaaya. Section 123’s rectification process addresses errors, a critical
safeguard tested in exams for membership disputes. The question requires you to detail
evidential hierarchy and judicial discretion, showing how courts resolve conflicts over
shareholder status. You must emphasize the register’s role while acknowledging alternative
proofs, a nuanced governance issue.

69. What are the rights of company members, and how do they influence corporate governance?
Answer: Company members (shareholders) enjoy several rights under the Companies Act, Cap
106, and Table A, which empower them to influence governance and protect their investments.
These rights, per the textbook, include:

 Information Rights:

o Access to the register of members (Section 117), directors, and secretaries (Section
224(2)) to verify ownership and leadership.

o Inspection of minutes of general meetings (Section 152) to review decisions, e.g.,

dividend approvals.
 o Receipt of notices for AGMs and EGMs (Section 136), ensuring participation, such as a
21-day notice for an AGM.

o Access to financial statements and directors’ reports (Section 134), enabling scrutiny of
performance.

 Participation Rights:

o Voting at general meetings, with one vote per share (Section 137(e), Article 62), e.g.,
electing directors or approving resolutions.

o Demanding a poll (Article 58) to ensure accurate voting, critical for major shareholders
in disputes.

o Attending and speaking at meetings (Section 139), allowing input on strategies, like
opposing a merger.

o Appointing proxies (Section 141) to vote in absentia, enhancing inclusivity.

 Ownership Rights:

o Transferring shares (Section 88), subject to Articles, e.g., selling to another investor with
board approval.

o Receiving share certificates (Section 88(2)), proving ownership, issued within two
months of allotment.

o Receiving dividends when declared (Section 134), rewarding investment, e.g., a 5%

annual payout.

o Having names entered in the register of members (Section 117), confirming legal status,
as in Rukikaire v Incafex.
These rights enable shareholders to oversee directors, influence major decisions (e.g.,
special resolutions, Section 144), and protect their financial stake. For instance, a
minority shareholder might demand a poll to challenge a director’s re-election, ensuring
their voice is heard. In oppression cases, rights support petitions for relief (Section 245),
as seen in Re El-Sombrero (1958) (contextual analogy). Collectively, they balance
director autonomy with member control, shaping governance through AGMs, EGMs,
and legal remedies.
Explanation: Shareholder rights are the bedrock of corporate democracy, codified in
Sections 117–152 and Table A. They empower oversight, as seen in John Shaw & Sons
(1935), preventing director entrenchment. The question tests your ability to categorize
rights and link them to governance outcomes, a frequent exam theme for shareholder-
director dynamics. You must detail each right’s scope and practical impact, showing how
they drive accountability and fairness.
70. How can a members’ register be rectified, and what are the procedural differences between
company and registrar processes?
Answer: Rectification of the members’ register addresses errors or omissions, ensuring accurate
shareholder records, and is governed by distinct processes for the company’s internal register
and the registrar’s public register, per the textbook:

 Company’s Register of Members:

o Process: The company, typically through the board or secretary, rectifies errors under
Regulation 8, Companies (Powers of Registrar) Regulations 2016. This involves internal
verification, such as confirming a missed share transfer with a certificate or payment
proof. Shareholders may submit a letter, petition, or statutory declaration to the
company, detailing the error (e.g., incorrect name or share count). The board resolves to
update the register, notifying the registrar via Form 7 within 14 days (Section 224(5)).

o Example: If a shareholder’s 100 shares are omitted due to clerical error, they submit a
share certificate, prompting the secretary to correct the register and file Form 7.

o Significance: This administrative process is swift for internal errors, avoiding litigation,
but disputes may escalate to court if unresolved, as in Mawogola Farmers v Kayanja
(1971).

 Registrar’s Register of Members:

o Process: Rectification requires a court order under Section 123, Companies Act, Cap
106, initiated by a shareholder, director, or aggrieved person via a notice of motion or
chamber summons (Order 38, Rule 4, Civil Procedure Rules). The applicant proves the
error (e.g., registrar’s failure to update a transfer), using evidence like share certificates
or minutes. The court may order rectification, costs, or damages if losses occurred,
notifying the registrar to amend records.

o Example: If the registrar’s register excludes a shareholder after a valid transfer, they file
a motion with the High Court, presenting a transfer form and certificate, leading to a
correction order.

o Significance: Judicial oversight ensures fairness in public records, critical for third-party
reliance (e.g., creditors), as seen in Lutaaya v Gandesha (1985). Appeals lie to higher
courts if contested.

 Key Differences: The company’s process is internal, informal, and board-driven, suitable for
minor errors, while the registrar’s process is formal, court-based, and mandatory for external
disputes or public records. The company’s rectification precedes registrar updates, but court
orders override internal refusals. Both aim to protect shareholder rights, with Section 117
deeming the register prima facie evidence until corrected. Failure to rectify risks oppression
claims (Section 245) or transaction disputes.
Explanation: Section 123 and Regulation 8 provide complementary remedies, balancing
efficiency with judicial rigor. Mawogola and Lutaaya illustrate courts’ equitable role, critical for
disputed memberships. The question tests your ability to distinguish procedural pathways and
 their legal basis, a complex exam topic for shareholder remedies. You must clarify each process’s
mechanics, evidence requirements, and governance implications, showing how they safeguard
accurate records and investor trust.

Below is a comprehensive list of 70 possible oral questions for your Corporate and Commercial Practice
exam at the Law Development Centre, focusing on Company Finance: Raising and Maintenance of
Share Capital, based on the provided textbook content by Isaac Christopher Lubogo. Each question is
followed by a detailed and accurate answer, incorporating provisions from the Companies Act, Cap 106,
relevant case law, regulations, and practical examples. The answers are structured for oral delivery,
ensuring clarity, depth, and alignment with the textbook to enhance your understanding and exam
readiness. They include statutory references, procedural steps, case law applications, and explanations
to address the exam’s oral format and your preparation needs as a student.

Questions and Answers

Share Capital: Definition and Types

1. What is share capital, and why must it be stated in a company’s Memorandum of Association?
Answer: Share capital is the authorized capital a company can raise by issuing shares,
representing the total value of shares available for subscription, as per the textbook. Section
6(4)(a), Companies Act, Cap 106, mandates that the Memorandum of Association (MOA) of a
company limited by shares must state this amount and its division into shares of a fixed value
(e.g., 10,000 shares of 1,000/= each). This requirement ensures transparency for investors,
creditors, and regulators, defining the company’s financial structure at incorporation. For
example, a company stating 50 million/= as share capital in its MOA signals its capacity to raise
funds, guiding shareholder expectations. It also limits the company’s ability to issue shares
beyond this cap without alteration, protecting stakeholders from over-dilution. Non-compliance
risks registration rejection by the registrar (Section 13).
Explanation: The MOA’s share capital clause establishes the company’s financial foundation,
aligning with Salomon v Salomon (1897)’s separate entity principle (global context). This
question tests your grasp of statutory requirements and their governance implications, a
fundamental exam topic. You must emphasize the legal purpose and consequences of this
disclosure.

2. What is nominal capital, and how does it differ from issued capital?
Answer: Nominal capital, also called authorized capital, is the total share capital a company is
permitted to issue, as stated in its MOA under Section 6(4)(a), Companies Act, Cap 106. For
instance, a company with a nominal capital of 100 million/= divided into 100,000 shares of
1,000/= can issue up to that amount. Issued capital, per the textbook, is the portion of nominal
capital actually allotted to shareholders, reflecting shares taken up. For example, if the company
issues 50,000 shares, the issued capital is 50 million/=. Nominal capital sets the ceiling, while
issued capital shows current shareholder commitments. Borland’s Trustee v Steel Bros & Co Ltd
(1901) defined shares as interests measured by money, implying nominal capital as the potential
pool and issued capital as the active portion. The distinction affects financial planning, as
unissued capital remains available for future allotments.
 Explanation: The difference highlights a company’s capacity versus its actual capitalization,
critical for investor decisions. Section 6’s MOA requirement ensures clarity, tested in exams for
definitional accuracy. You must contrast their roles and cite statutory or case law support.

3. What constitutes paid-up capital, and how is it regulated under the Companies Act?
Answer: Paid-up capital is the portion of issued capital that shareholders have actually paid for,
as per the textbook. Section 67(a), Companies Act, Cap 106, allows companies to arrange
different payment terms for shares, enabling partial payments. For example, if a company issues
10,000 shares at 1,000/= each and shareholders pay 500/= per share, the paid-up capital is 5
million/=. Article 15, Table A, empowers directors to call for payments on unpaid shares,
ensuring funds are collected systematically. This capital is critical for operations, as it represents
actual cash or value received, unlike issued capital, which includes unpaid commitments. Non-
payment risks forfeiture (Article 33, Table A), as seen in Matthew Rukikaire v Incafex (U) Ltd
(SCCA No.3/2015), where the court noted payment obligations arise during operations or
winding up. The registrar monitors paid-up capital via returns (Section 59), ensuring compliance.
Explanation: Paid-up capital reflects financial health, distinguishing liquid assets from promises.
Section 67’s flexibility accommodates diverse business models, a nuance tested in exams for
financial structures. You must explain its role, regulation, and consequences of non-payment.

4. What is reserve capital, and under what circumstances is it utilized?

Answer: Reserve capital is the portion of a company’s uncalled capital that, by special
resolution, is designated not to be called up except during winding up, as per Section 68,
Companies Act, Cap 106, and the textbook. For instance, a company with 20 million/= uncalled
capital might reserve 10 million/= for liquidation purposes, ensuring funds for creditors if
insolvency occurs. This restriction, passed at a general meeting (Section 144), protects
stakeholders by preserving capital for extreme scenarios, unlike regular calls under Article 15,
Table A. In practice, a board resolution cannot override this reserve without altering the
resolution, maintaining creditor confidence. Trevor v Whitworth (1887)’s principle against
capital reduction indirectly supports reserving capital to safeguard company solvency. Utilization
during winding up prioritizes creditor payments, as mandated by Section 245.
Explanation: Reserve capital is a statutory safeguard, reflecting Section 68’s focus on creditor
protection. Its limited use underscores capital maintenance, a key exam theme. You must detail
its creation, purpose, and legal constraints, linking to insolvency scenarios.

5. What is sweat equity, and how is it valued and reported under the Companies Act?
Answer: Sweat equity refers to non-cash contributions, such as skills, expertise, or intangible
assets, made by shareholders in exchange for shares, as per the textbook. Section 59(1)(b),
Companies Act, Cap 106, requires a return of allotment for such contributions, detailing the
valuation agreed upon by the parties. For example, a software developer might receive shares
for coding a company’s platform, valued at 5 million/= through negotiation. The valuation, often
supported by an independent expert (e.g., a certified accountant), ensures fairness, as no
statutory method is prescribed. A board resolution approves the allotment, and a Form 8 return,
filed within 60 days (Section 59(2)), reports the contributor’s name, share quantity, and
valuation to the registrar. This promotes transparency, preventing undervaluation disputes.
Hilder v Dexter (1902) supports issuing shares for non-cash considerations, reinforcing sweat
equity’s legitimacy. Non-compliance risks fines or share invalidity (Section 59(3)).
 Explanation: Sweat equity incentivizes talent in cash-strapped startups, but Section 59 ensures
accountability. The question tests your understanding of non-traditional capital and compliance,
often paired with allotment procedures in exams. You must outline valuation and filing
processes clearly.

Raising Share Capital: Internal Sources

6. How can a company raise share capital by selling shares at a premium, and what are the legal
requirements?
Answer: Selling shares at a premium involves issuing shares above their nominal value,
generating additional capital, as per Section 64, Companies Act, Cap 106, and the textbook. For
example, a share with a 1,000/= nominal value sold at 1,500/= yields a 500/= premium. The
process includes:

o Board Resolution: The board convenes under Article 98, Table A, passing a resolution to
issue shares at a premium, determining the price based on market valuation or a
certified public accountant’s report.

o Share Premium Account: Section 64(1) mandates transferring the premium to a share
premium account, treated as paid-up capital for uses like paying unissued shares or
writing off expenses (Section 64(2)).

o Shareholder Approval: If required by Articles, an ordinary resolution at an EGM

sanctions the issue (Article 44, Table A).

o Filing: A return of allotment (Form 8, Section 59) is filed within 60 days, detailing shares
issued and premiums.
In Hilder v Dexter (1902), the court upheld issuing shares at a premium without special
Articles, validating this method. Premiums enhance capital without increasing share
volume, benefiting existing shareholders. Non-compliance risks registrar penalties
(Section 273).
Explanation: Section 64’s premium account rule ensures capital integrity, distinct from
nominal capital reductions (Trevor v Whitworth). This question tests procedural and
statutory compliance, a common exam focus. You must detail steps and the premium
account’s role.

7. What are redeemable preference shares, and how does their issuance raise share capital?
Answer: Redeemable preference shares are shares with priority in dividends and capital
repayment, which the company can buy back at its option, as per Section 66(1), Companies Act,
Cap 106, and the textbook. They raise capital by attracting investors seeking fixed returns with
redemption guarantees. The issuance process includes:

o Authorization: The Articles must permit issuance (Article 3, Table A), sanctioned by an
ordinary resolution at a general meeting.

o Board Resolution: Directors pass a resolution under Article 98, specifying terms (e.g.,
6% dividend, redemption in 5 years).
 o Conditions: Section 66(2) requires redemption from profits available for dividends or
proceeds of a fresh share issue, and shares must be fully paid up. Premiums are paid
from the share premium account.

o Capital Redemption Reserve: If redeemed from profits, an equivalent amount is

transferred to a capital redemption reserve, treated as paid-up capital (Section 66(2)
(d)).
For example, a company issuing 10,000 redeemable preference shares at 1,000/= each
raises 10 million/=, redeemable in 2028. Trevor v Whitworth (1887)’s capital
maintenance rule is exempted for redemptions, ensuring solvency. A notice to
shareholders confirms redemption terms.
Explanation: Redeemable shares balance investor security with company flexibility,
regulated by Section 66 to protect creditors. The question probes your grasp of
statutory conditions and capital maintenance, often tested for procedural accuracy. You
must outline issuance and redemption mechanics.

8. What are the rights of holders of redeemable preference shares, and how do they differ from
ordinary shareholders?
Answer: Holders of redeemable preference shares, per the textbook, enjoy specific rights under
Section 66, Companies Act, Cap 106, and Table A, distinguishing them from ordinary
shareholders:

o Priority in Dividends: They receive fixed dividends (e.g., 5% annually) before ordinary
shareholders, paid from profits (Article 116, Table A).

o Priority in Capital: On winding up, they are repaid before ordinary shareholders,
ensuring capital security.

o Right to Redemption: The company may redeem shares at a fixed date or earlier, per
terms set in the Articles.

o Cumulative Dividends: If dividends are unpaid, they accrue for future payment, unlike
ordinary shares’ variable dividends.

o Voting Rights: Limited to class meetings or specific issues (e.g., redemption terms),
unlike ordinary shareholders’ general voting rights (Section 137(e)).

o Conversion Rights: Articles may allow conversion to other classes, e.g., ordinary shares,
enhancing flexibility.
For example, a preference shareholder might receive a 6% dividend annually, while an
ordinary shareholder’s dividend depends on profits. Borland’s Trustee v Steel Bros
(1901) defines shares as bundles of rights, highlighting preference shares’ priority.
Ordinary shareholders bear higher risks but gain control and potential higher returns.
Explanation: Preference shares’ rights prioritize stability, contrasting with ordinary
shares’ risk-reward profile. The question tests your ability to compare shareholder
classes, a frequent exam topic for rights and governance. You must detail each right and
contrast their implications.
9. What is the procedure for redeeming redeemable preference shares, and how does it comply
with capital maintenance rules?
Answer: Redeeming redeemable preference shares involves repurchasing them under Section
66, Companies Act, Cap 106, as an exception to Trevor v Whitworth (1887)’s rule against capital
reduction, per the textbook. The procedure includes:

o Eligibility Check: Shares must be fully paid up (Section 66(2)(b)), verified by the
company secretary.

o Funding Source: Redemption uses profits available for dividends or proceeds from a
fresh share issue (Section 66(2)(a)). Premiums are covered by the share premium
account (Section 66(2)(c)).

o Board Resolution: Directors convene (Article 98, Table A) and pass a resolution
specifying redemption terms, amount, and date.

o Capital Redemption Reserve: If using profits, an equivalent sum is transferred to a

capital redemption reserve, treated as paid-up capital to maintain capital levels (Section
66(2)(d)).

o Notice to Shareholders: A notice, per Articles, informs holders of redemption details,

ensuring transparency.
For example, redeeming 5,000 shares at 1,000/= each requires 5 million/= from profits,
with 5 million/= transferred to the reserve. This preserves capital, aligning with Section
66’s safeguards. Non-compliance risks voiding the redemption or fines (Section 273).
Explanation: Section 66’s strict conditions uphold capital maintenance, protecting
creditors while allowing flexibility. The question tests procedural compliance and legal
rationale, a key exam area for financial transactions. You must detail steps and link to
Trevor v Whitworth.

10. How does a company allot shares subject to pre-emption rights, and what is their significance
in a private company?
Answer: Allotting shares subject to pre-emption rights means offering new shares to existing
shareholders in proportion to their holdings before public issuance, as per the textbook and
Articles of Association. Section 4(1)(a), Companies Act, Cap 106, defines private companies as
restricting share transfers, often via pre-emption clauses. The procedure includes:

o Board Resolution: A board meeting (Article 98, Table A) passes a resolution proposing
an allotment, noting pre-emption rights.

o EGM Notice: A 21-day notice convenes an EGM (Article 50), informing shareholders of
the allotment plan.

o EGM Resolution: Shareholders pass an ordinary resolution (Article 44) allowing the
allotment, with members exercising or waiving pre-emption rights.

o Allotment Resolution: The board reconvenes, allotting shares to members who

subscribed or to new investors if rights are waived.
 o Filing: A return of allotment (Form 8, Section 59) is filed within 60 days, detailing
allottees.
For example, if a company issues 1,000 new shares, a 10% shareholder is offered 100
shares first. Pre-emption rights, per Tett v Phoenix and Investment Co (1986), ensure
existing shareholders maintain control, preventing dilution in private companies. Non-
compliance risks shareholder disputes or court-ordered rectification (Section 123).
Explanation: Pre-emption rights uphold private companies’ closed nature, a governance
cornerstone. The question tests your procedural knowledge and understanding of
shareholder protections, often examined for private company dynamics. You must
outline steps and their legal significance.

11. What documents are required for allotting shares in a private company, and why are they
important?
Answer: Allotting shares requires specific documents to ensure legal compliance and
transparency, per the textbook:

o Notices of Meetings: Notices for the board meeting and EGM (Article 50, Table A),
specifying the allotment proposal, ensure due process.

o Ordinary Resolution: Passed at the EGM (Article 44), it authorizes the allotment,
reflecting shareholder consent, critical for pre-emption rights.

o Board Resolutions: One proposing the allotment and another confirming it post-EGM
(Article 98), documenting director decisions.

o Return of Allotment: Form 8, filed under Section 59 within 60 days, details allottees,
shares, and consideration (cash or non-cash), updating the public record.
For example, allotting 2,000 shares requires a notice convening an EGM, a resolution
approving the issue, and a filed Form 8. These documents, per Matthew Rukikaire v
Incafex (SCCA No.3/2015), validate membership and prevent disputes by proving
compliance. Their importance lies in ensuring transparency, enabling registrar oversight,
and protecting shareholder rights. Non-filing risks fines (Section 59(3)) or allotment
challenges.
Explanation: Documentation is a statutory safeguard, aligning with Section 59’s
accountability focus. The question tests your grasp of compliance mechanics, a
procedural exam staple. You must list documents and explain their role in governance.

12. How does a company allot shares in excess of its authorized share capital, and what are the
legal consequences?
Answer: Allotting shares beyond authorized share capital requires increasing the nominal
capital, per Section 69(1)(a), Companies Act, Cap 106, and the textbook. The procedure
includes:

o EGM Resolution: A special resolution is passed at an EGM (Section 144) to amend the
MOA’s capital clause, increasing the share capital (e.g., from 50 million/= to 100
million/=).
 o Board Resolution: Directors convene (Article 98, Table A) to propose the increase and
allotment terms.

o Notice to Registrar: Section 73(1) requires filing a notice of increase (Form 3,

Companies (General) Regulations 2016) within 30 days, attaching the special resolution
(Regulation 20(2)).

o Allotment Process: Post-increase, the board allots shares via an ordinary resolution
(Article 44), filing a return (Form 8, Section 59).
For example, a company needing 20 million/= beyond its 50 million/= cap passes a
special resolution to raise it to 70 million/=, then allots shares. Section 181(2)(b)–(c)
allows registrar restrictions on allotments to protect investors. Non-compliance (e.g.,
late filing) incurs fines (Section 273), and unauthorized allotments are voidable, risking
shareholder lawsuits (Section 123).
Explanation: Section 69 ensures controlled capital expansion, balancing growth with
oversight. The question tests statutory procedures and penalties, a key exam area for
capital alterations. You must detail steps and highlight registrar’s role.

13. What is a shareholder loan agreement, and how does it contribute to raising capital?
Answer: A shareholder loan agreement is a contract where a shareholder lends funds to the
company, treated as a debt rather than equity, per the textbook. Section 48(1), Companies Act,
Cap 106, allows companies to execute contracts, and Article 79(1), Table A, permits directors to
borrow. The process includes:

o Board Resolution: Directors convene (Article 98) and pass a resolution authorizing the
loan, specifying terms (e.g., interest rate, repayment period).

o Loan Agreement: The company and shareholder execute an agreement detailing the
amount, terms, and repayment, not conferring shareholder rights beyond creditor
status.

o Documentation: The agreement is recorded in company books, with no mandatory

registrar filing unless secured by a charge (Section 101).
For example, a shareholder lending 10 million/= at 5% interest provides immediate
capital without issuing shares, preserving voting control. Photo Focus Ltd v Mulenga
Joseph (1996) supports directors’ borrowing powers, making shareholder loans flexible.
They raise capital with favorable terms compared to bank loans, but default risks
creditor claims, potentially triggering insolvency (Section 245).
Explanation: Shareholder loans offer quick capital without equity dilution, regulated by
Article 79. The question tests your understanding of alternative financing, often
contrasted with share issuance in exams. You must explain the process and its financial
implications.

14. What is a call on shares, and what are the procedural requirements for making one?
Answer: A call on shares is a demand by the company for shareholders to pay unpaid amounts
on their shares, per Article 15(1), Table A, and the textbook. Section 19(2), Companies Act, Cap
106, deems these payments a debt owed to the company. The procedure includes:
 o Board Resolution: Directors convene (Article 98), passing a resolution for a call not
exceeding one-fourth of the share’s nominal value (Article 15(2)), with a quorum of two
unless specified (Article 99).

o Demand Notice: A notice is issued to shareholders, specifying the amount, payment

location, and a minimum 14-day payment period (Article 15(3)).

o Non-Compliance Notice: If unpaid, a further notice demands payment with interest

(Article 33).
For example, a 1,000/= share with 500/= unpaid might face a 250/= call. Matthew
Rukikaire v Incafex (SCCA No.3/2015) clarified that payment obligations arise during
operations or winding up, reinforcing calls’ enforceability. Non-payment risks forfeiture
(Article 35).
Explanation: Calls ensure capital realization, critical for liquidity. Article 15’s limits
protect shareholders from excessive demands, a nuance tested in exams for financial
obligations. You must detail steps and consequences, citing case law.

15. How can a company issue shares at a discount, and what safeguards are in place?
Answer: Issuing shares at a discount involves selling them below nominal value to raise capital,
permitted under Section 65(1), Companies Act, Cap 106, per the textbook. The process
includes:

o General Meeting Resolution: An ordinary resolution is passed at an EGM (Section

65(2)), approving the discount.

o Court Sanction: A petition under Order 38, Rule 3(e), Civil Procedure Rules, seeks court
approval, ensuring creditor protection and solvency.

o Board Resolution: Post-sanction, directors allot shares (Article 98), filing a return (Form
8, Section 59).
For example, a 1,000/= share issued at 800/= requires court oversight to prevent capital
erosion. Trevor v Whitworth (1887)’s capital maintenance principle necessitates court
scrutiny to safeguard creditors, as discounts reduce available capital. Without court
approval, the issuance is void, risking fines (Section 273) or shareholder challenges
(Section 123).
Explanation: Section 65’s stringent requirements balance capital raising with financial
stability. The question tests your grasp of exceptions to capital rules, a complex exam
topic. You must outline procedures and emphasize court oversight.

16. How does a company raise capital from forfeited shares, and what are the legal implications?
Answer: Raising capital from forfeited shares involves re-issuing or selling shares surrendered
due to non-payment of calls, per Article 36, Table A, and the textbook. The process includes:

o Forfeiture Resolution: Directors pass a resolution (Article 35) after issuing a 14-day
notice (Article 34) for unpaid calls, as per Article 33.

o Re-issue/Sale: Forfeited shares are sold at a premium, par, or discount (not exceeding
the forfeited amount, Article 36), via board resolution.
 o Purchaser Title: The buyer gains clear title, not requiring a return of allotment (Section
59).
For example, a forfeited 1,000/= share sold at 1,200/= raises 1,200/=. Trevor v
Whitworth (1887) noted that forfeited shares revert to the company, relieving
shareholders of liability but retaining paid amounts. Re-issuance increases capital
without new allotments, but Article 37 holds former owners liable for outstanding
debts.
Explanation: Forfeiture recycles capital, aligning with Article 36’s flexibility. The
question tests procedural and liability nuances, often examined for shareholder
obligations. You must detail steps and clarify title transfer.

17. What are unissued shares, and how can they be used to raise capital at a premium?
Answer: Unissued shares are shares within the authorized capital not yet allotted or offered, per
the textbook. Section 64(1), Companies Act, Cap 106, allows issuing them at a premium to raise
capital. The process includes:

o Valuation: A certified public accountant determines the premium, producing a valuation

report.

o Board Resolution: Directors convene (Article 98), resolving to issue shares at a premium
(e.g., 1,000/= shares at 1,500/=).

o Shareholder Approval: An ordinary resolution at an EGM (Article 44) sanctions the issue
if Articles require.

o Premium Account: Premiums are transferred to a share premium account (Section

64(1)), used for purposes like redeeming debentures (Section 64(2)).

o Filing: A return of allotment (Form 8, Section 59) is filed.

For example, issuing 5,000 unissued shares at a 500/= premium raises 7.5 million/=.
Hilder v Dexter (1902) supports premium issuances, enhancing capital without altering
share numbers. Non-compliance risks fines (Section 59(3)).
Explanation: Unissued shares leverage existing capacity, regulated by Section 64 for
transparency. The question tests your understanding of premium mechanics, a practical
exam topic. You must outline valuation and statutory uses.

Raising Share Capital: External Sources

18. What is debt financing, and how does it differ from equity financing in raising capital?
Answer: Debt financing involves borrowing funds from external lenders, like banks, secured by
debentures or charges, repayable with interest, per the textbook. Equity financing raises capital
by issuing shares, diluting ownership but avoiding repayment obligations. Under Article 79(1),
Table A, directors can borrow, while Section 64 governs share issuances. For example, a 50
million/= bank loan (debt) requires collateral and interest, whereas issuing 50,000 shares at
1,000/= (equity) grants ownership rights. Photo Focus Ltd v Mulenga Joseph (1996) upheld
directors’ borrowing powers, binding the company. Debt financing preserves control but risks
insolvency if unpaid (Section 245), while equity financing shares profits and risks dilution. Debt is
often cheaper short-term, but equity suits long-term growth.
 Explanation: The distinction reflects strategic financing choices, tested in exams for financial
structuring. Article 79 and Section 64 highlight governance differences. You must compare
mechanisms and their impacts on control and liability.

19. How does lease financing work as a method to raise capital, and what are its advantages?
Answer: Lease financing involves a lessor purchasing an asset (e.g., machinery) for the
company’s use, with the company making periodic lease payments until ownership transfers,
per the textbook. The process includes:

o Agreement: The company signs a lease contract, detailing payments and terms.

o Payments: Regular lease rentals are paid, treated as operational expenses, not debt.

o Ownership Transfer: Upon fulfilling payments, the asset becomes the company’s.
For example, leasing equipment worth 20 million/= allows use without upfront costs,
raising effective capital by freeing cash for other needs. Section 48(1), Companies Act,
permits such contracts. Advantages include no equity dilution, tax-deductible payments,
and flexibility for asset upgrades. Unlike loans, default risks asset repossession, not
insolvency, as in Bristol Airport v Powdrill (1990)’s security context.
Explanation: Lease financing is an indirect capital tool, preserving liquidity. The question
tests alternative financing methods, less common but relevant in exams. You must detail
mechanics and contrast with debt/equity.

20. What are trade-offs in the context of raising capital, and how do they benefit a company?
Answer: Trade-offs involve a third party purchasing a company’s existing debt from a lender,
offering better repayment terms (e.g., lower interest, longer duration), per the textbook. The
process includes:

o Negotiation: The company approaches a new lender to assume the debt, agreeing on
terms.

o Agreement: A contract outlines the trade-off, transferring the debt obligation.

o Board Resolution: Directors approve the arrangement (Article 98, Table A).
For example, swapping a 10 million/= loan at 15% interest for one at 10% reduces costs.
Section 48(1), Companies Act, supports such contracts. Benefits include improved cash
flow, extended repayment periods, and avoiding default risks (Section 245). Unlike new
loans, trade-offs refinance existing debt, maintaining credit ratings. Photo Focus Ltd v
Mulenga Joseph (1996)’s borrowing principle applies indirectly.
Explanation: Trade-offs optimize debt management, a niche financing strategy. The
question tests your ability to explore external methods, often paired with debt financing
in exams. You must explain the process and financial relief.

21. How does trade financing facilitate capital raising, and what instruments are commonly used?
Answer: Trade financing involves short-term credit arrangements to support a company’s trade
activities, indirectly raising capital by easing cash flow, per the textbook. Common instruments
include:
 o Letters of Credit: Guarantees from banks ensuring payment to suppliers, allowing
delayed payments.

o Short-Term Loans: Funds for purchasing inventory, repayable post-sales.

The process includes negotiating terms with a bank, executing agreements, and using
funds for trade. For example, a letter of credit for 5 million/= enables importing goods
without immediate payment, preserving capital. Section 48(1), Companies Act, permits
such contracts, and Article 79(1), Table A, allows borrowing. Benefits include liquidity
for operations and supplier trust, avoiding equity issuance. Default risks credit penalties,
not asset loss, per Bristol Airport v Powdrill (1990)’s security analogy.
Explanation: Trade financing supports operational capital, distinct from long-term debt.
The question tests niche external methods, relevant for exam scenarios on liquidity. You
must detail instruments and their role in cash flow.

22. What are bailouts, and under what circumstances might a company receive one?
Answer: Bailouts are government-provided funds to financially distressed companies to resolve
solvency issues, per the textbook. They raise capital without equity or debt obligations. The
process involves:

o Application: The company submits a distress report to the government, detailing

financial needs.

o Approval: Authorities assess the company’s economic impact (e.g., jobs) and grant
funds.

o Agreement: Terms outline usage, often requiring restructuring.

For example, a struggling manufacturer might receive 100 million/= to avoid layoffs.
Section 48(1), Companies Act, supports such arrangements. Bailouts occur during
systemic crises or for strategic industries, as implied in insolvency contexts (Section
245). Benefits include survival without shareholder dilution, but conditions may limit
autonomy. No direct case law applies, but Photo Focus Ltd v Mulenga Joseph (1996)’s
borrowing flexibility is analogous.
Explanation: Bailouts are rare but critical, tested in exams for external financing
extremes. You must clarify their purpose, process, and governance implications, noting
their unique nature.

23. How does warehouse receipting work as a capital-raising method, and what are its risks?
Answer: Warehouse receipting involves a warehousing company storing a company’s goods,
with a creditor extending credit secured by those goods, per the textbook. The process includes:

o Agreement: The company contracts a warehouse and creditor, pledging goods as

collateral.

o Credit Extension: Funds are advanced, with proceeds from goods servicing the debt.

o Access: The company uses goods while repaying, retaining operational control.
For example, storing 10 million/= in inventory secures a 7 million/= loan, raising capital
for other uses. Section 48(1), Companies Act, permits such contracts. Benefits include
 liquidity without share issuance, but risks include creditor seizure of goods on default,
per Chattels Securities Act, No.7/2014. Bristol Airport v Powdrill (1990)’s security
principle applies to collateral enforcement.
Explanation: Warehouse receipting leverages assets for cash, a specialized method. The
question tests unconventional financing, relevant for exam diversity. You must detail
mechanics and highlight default risks.

24. What is hire purchase, and how does it contribute to capital raising?
Answer: Hire purchase allows a company to acquire assets by paying an initial deposit and
installments, with ownership transferring upon final payment, per the textbook. The process
includes:

o Contract: The company signs an agreement with a vendor, detailing payments.

o Payments: Installments cover the asset’s cost plus interest, treated as expenses.

o Ownership: Full payment transfers title.

For example, acquiring a 5 million/= vehicle with a 1 million/= deposit frees 4 million/=
for other uses, raising effective capital. Section 48(1), Companies Act, supports such
contracts. Benefits include asset use without full upfront costs, preserving equity.
Default risks repossession, per Chattels Securities Act, No.7/2014, not insolvency.
Bristol Airport v Powdrill (1990)’s security analogy applies.
Explanation: Hire purchase is a practical capital tool, tested in exams for asset-based
financing. You must explain its structure and contrast with debt, emphasizing
repossession risks.

25. How can disposal of assets raise capital, and what legal considerations apply?
Answer: Disposal of assets involves selling company property to generate funds, per the
textbook. The process includes:

o Board Resolution: Directors approve the sale (Article 98, Table A), identifying assets
(e.g., land).

o Valuation: An independent valuer assesses the asset’s worth to ensure fair pricing.

o Contract: A sale agreement is executed (Section 48(1), Companies Act), transferring

ownership.
For example, selling unused land for 30 million/= provides immediate capital. Legal
considerations include:

o Director Duties: Section 194(a) requires acting in the company’s interest, avoiding
undervaluation.

o Shareholder Approval: Major disposals may need an ordinary resolution (Article 44).

o Charges: Assets under charges require creditor consent (Section 101).

Gramophone and Typewriter Ltd v Stanley (1908) supports directors’ management
powers, including asset sales. Proceeds must align with company success, or directors
risk liability (Section 194).
 Explanation: Asset disposal is straightforward but regulated to prevent
mismanagement. The question tests directors’ authority and compliance, a practical
exam topic. You must detail steps and statutory safeguards.

Alteration of Share Capital

26. What are the ways a company can alter its share capital under the Companies Act?
Answer: Section 69, Companies Act, Cap 106, allows a company with share capital, if authorized
by its Articles, to alter its Memorandum by:

o Increasing Share Capital: Adding new shares to the authorized capital (e.g., from 50
million/= to 100 million/=).

o Reducing Share Capital: Decreasing capital by cancelling unissued shares or repaying

shareholders (Section 63).

o Consolidating Shares: Combining shares into fewer, higher-value shares (e.g., ten
1,000/= shares into one 10,000/= share).

o Sub-dividing Shares: Splitting shares into smaller denominations (e.g., one 10,000/=
share into ten 1,000/= shares).

o Converting Shares: Changing share classes (e.g., preference to ordinary).

o Cancelling Shares: Eliminating unissued shares, reducing nominal capital.

Article 44, Table A, requires an ordinary resolution at a general meeting. For example, a
company might consolidate shares to streamline its structure. Alterations must be
notified to the registrar within 30 days (Sections 71, 73), ensuring transparency.
Borland’s Trustee v Steel Bros (1901) defines shares as flexible interests, supporting
alterations. Non-compliance risks fines (Section 273).
Explanation: Section 69’s flexibility accommodates growth or restructuring, balanced by
oversight. The question tests statutory options, a core exam area for capital
management. You must list methods and cite legal authority.

27. What is the procedure for reducing share capital, and why is court approval required?
Answer: Reducing share capital, per Section 63, Companies Act, Cap 106, and the textbook,
involves:

o Ordinary Resolution: An EGM passes an ordinary resolution (Article 44, Table A) to

reduce capital (e.g., cancelling 10 million/= unissued shares).

o MOA Amendment: A resolution alters the MOA to reflect the new capital (Section 69).

o Court Petition: A petition under Order 38, Rule 3(e), Civil Procedure Rules, lists
creditors, seeking court approval (Section 63). The petition is gazetted for objections.

o Court Order: If unopposed, the court grants the reduction, ensuring creditor protection.

o Registrar Filing: A notice (Form 3, Section 64) and resolutions are filed within 30 days,
with fees (Companies (Fees) Rules, SI 110-3).
 For example, reducing capital to repay shareholders requires court scrutiny to prevent
prejudice. Trevor v Whitworth (1887) mandates reductions preserve creditor funds,
justifying court oversight. Non-compliance voids the reduction, risking fines (Section
273) or creditor claims (Section 245).
Explanation: Court approval upholds capital maintenance, a cornerstone principle. The
question tests procedural rigor, often examined for creditor safeguards. You must detail
steps and emphasize court’s role.

28. How does a company increase its share capital, and what documents are required?
Answer: Increasing share capital, per Section 69(1)(a), Companies Act, Cap 106, expands
authorized capital. The procedure, per the textbook, includes:

o Ordinary Resolution: An EGM passes an ordinary resolution (Article 44, Table A) to

increase capital (e.g., from 50 million/= to 80 million/=).

o MOA Amendment: A resolution updates the MOA’s capital clause (Section 69).

o Registrar Filing: A notice of increase (Form 3, Section 71, Companies (General)

Regulations 2016) is filed within 30 days, attaching resolutions (Regulation 20(2)).

o Payment: Fees are paid per Companies (Fees) Rules, SI 110-3, as amended.
Required documents are:

o Resolution for capital increase.

o Resolution amending the MOA.

o Form 3 notice to the registrar.

For example, increasing capital to issue new shares supports expansion. Hilder v Dexter
(1902)’s issuance flexibility applies. Late filing incurs fines (Section 273), and registrars
may impose restrictions (Section 181).
Explanation: Section 71 ensures public notice of capital changes, enhancing trust. The
question tests procedural compliance, a staple exam topic. You must list documents and
statutory deadlines.

29. What is the role of an ordinary resolution in altering share capital, and how does it differ from
a special resolution?
Answer: An ordinary resolution, requiring a simple majority (>50%), alters share capital under
Section 69, Companies Act, Cap 106, for actions like increasing, reducing, or consolidating
shares, as per Article 44, Table A, and the textbook. For example, an EGM might approve adding
20 million/= to capital. A special resolution, needing 75% approval (Section 144), is used for
specific MOA changes, like altering objects (Section 16), but not typically capital alterations
unless increasing nominal capital (Section 69(1)(a)). The ordinary resolution’s lower threshold
suits routine capital adjustments, while special resolutions address fundamental changes.
Borland’s Trustee v Steel Bros (1901) supports shares’ malleability, aligning with Section 69’s
flexibility. Both require registrar filing (Sections 71, 148), but special resolutions have stricter
notice requirements (21 days, Section 136).
Explanation: The distinction reflects governance thresholds, tested in exams for resolution
 types. You must clarify ordinary resolutions’ role in capital changes versus special resolutions’
broader scope, citing statutory differences.

30. Why must alterations of share capital be notified to the registrar, and what are the
consequences of non-compliance?
Answer: Sections 64, 71, 73, Companies Act, Cap 106, require notifying the registrar within 30
days of share capital alterations (e.g., increases, reductions), using Form 3 with resolutions, per
the textbook. Notification ensures the public record reflects the company’s capital structure,
informing creditors and investors. For example, increasing capital from 50 million/= to 70
million/= requires filing to update the MOA. Consequences of non-compliance include:

o Fines: Section 273 imposes penalties (e.g., 5 currency points for late filing).

o Invalidity Risk: Courts may void unauthorized changes, as implied in Trevor v

Whitworth (1887)’s capital maintenance.

o Registrar Sanctions: Restrictions on further allotments (Section 181(2)).

Companies (Fees) Rules, SI 110-3, mandate fees, ensuring registry funding. Hilder v
Dexter (1902)’s transparency principle supports public disclosure.
Explanation: Notification upholds transparency, a statutory duty. The question tests
compliance consequences, often paired with filing procedures in exams. You must
emphasize registrar’s role and penalties.

Allotment of Shares

31. What is the legal definition of allotment of shares, and how was it interpreted in Matthew
Rukikaire v Incafex?
Answer: Allotment is the process by which a company assigns shares to a person willing to
become a shareholder, per the textbook. Matthew Rukikaire v Incafex (U) Ltd (SCCA
No.3/2015) defined it as a contractual step where the company offers shares, followed by
acceptance and registration to confer membership (Section 45(2)). The court held that
allotment alone doesn’t make one a member; entry in the register of members is required. For
example, allotting 1,000 shares to an investor requires their agreement and registration, not just
payment. The case clarified that non-payment doesn’t negate allotment if the register lists the
allottee, distinguishing title (shareholder) from membership. National Westminster Bank v IRC
(1995) supported this, noting allotment grants a right to registration. Allotment involves a board
resolution (Article 98, Table A) and filing a return (Form 8, Section 59).
Explanation: Rukikaire’s two-step process (allotment, registration) is pivotal, tested in exams for
membership disputes. You must define allotment, cite the case, and clarify its legal effect.

32. What is the process of allotting shares, and how does it ensure shareholder rights?
Answer: Allotting shares assigns them to subscribers or investors, per the textbook, ensuring
governance and fairness. The process, under Companies Act, Cap 106, includes:

o Board Resolution: Directors propose allotment (Article 98, Table A), setting terms (e.g.,
number, price).
 o EGM Approval: An ordinary resolution at an EGM (Article 44) approves, respecting pre-
emption rights (Section 4(1)(a)).

o Offer and Acceptance: Shares are offered, and allottees accept via applications or
agreements.

o Registration: Allottees’ names enter the register of members (Section 117), confirming
membership (Section 45(2)).

o Filing: A return of allotment (Form 8, Section 59) is filed within 60 days.

For example, allotting 2,000 shares involves offering them to existing shareholders first,
ensuring non-dilution. Matthew Rukikaire v Incafex (SCCA No.3/2015) emphasized
registration’s role, protecting allottees’ title. Pre-emption clauses and transparency
safeguard shareholder rights, per Tett v Phoenix (1986).
Explanation: The process balances director discretion with shareholder protections,
tested in exams for procedural rigor. You must detail steps and link to rights like voting
and dividends.

33. How does allotment differ from issuing shares, and why is this distinction important?
Answer: Allotment is the contractual allocation of shares to an applicant, while issuing shares is
the subsequent act completing the allottee’s title, per the textbook. Matthew Rukikaire v
Incafex (SCCA No.3/2015), citing Ambrose Lake Tin and Copper Co (1878), clarified that
allotment creates a right to shares, perfected by issuance through registration (Section 117) or
share certificate delivery (Section 88). For example, allotting 500 shares involves an offer and
acceptance, but issuance occurs when the allottee’s name enters the register. The distinction
matters because:

o Allotment binds the company contractually, but only issuance grants shareholder rights
(e.g., voting, Section 137(e)).

o Non-issuance may delay membership, risking disputes, as in Rukikaire.

o Filing requirements (Section 59) apply post-allotment, ensuring transparency.

National Westminster Bank v IRC (1995) reinforced that allotment precedes
membership. The distinction prevents premature claims to rights before legal title is
clear.
Explanation: The Rukikaire ruling clarifies sequential roles, critical for exam questions
on share ownership. You must contrast definitions and highlight governance
implications.

34. What are the legal consequences of allotting shares without proper registration, and how can
they be rectified?
Answer: Allotting shares without registering allottees in the register of members (Section 117,
Companies Act, Cap 106) has serious consequences, per the textbook:

o Non-Membership: Matthew Rukikaire v Incafex (SCCA No.3/2015) held that allottees

aren’t members until registered, denying rights like voting (Section 137(e)) or dividends
(Article 116, Table A).
 o Disputes: Unregistered allottees may challenge the company, risking litigation (Section
123).

o Fines: Failure to file a return of allotment (Form 8, Section 59) within 60 days incurs
penalties (Section 59(3)).
Rectification involves:

o Internal Correction: The board updates the register under Regulation 8, Companies
(Powers of Registrar) Regulations 2016, filing Form 7.

o Court Petition: If disputed, Section 121(1) allows a High Court petition for rectification,
as in Mawogola Farmers v Kayanja (1971).
For example, omitting an allottee’s 1,000 shares requires board action or court order.
Rukikaire emphasized registration’s evidential role, ensuring fairness.
Explanation: Registration completes legal title, a statutory safeguard. The question tests
compliance failures, common in exams for shareholder disputes. You must outline
consequences and remedies.

35. How does a company ensure pre-emption rights are respected during share allotment?
Answer: Pre-emption rights, per Section 4(1)(a), Companies Act, Cap 106, and Articles, require
offering new shares to existing shareholders proportionally before public issuance, per the
textbook. The process includes:

o Board Proposal: Directors resolve to allot shares (Article 98, Table A), noting pre-
emption obligations.

o EGM Notice: A 21-day notice (Article 50) informs shareholders, detailing the offer.

o Shareholder Exercise: Members accept or waive rights via the EGM’s ordinary
resolution (Article 44).

o Allotment: Shares are allotted to participating shareholders or others if waived, with a

return filed (Section 59).
For example, a 10% shareholder is offered 10% of 1,000 new shares. Tett v Phoenix and
Investment Co (1986) mandates reasonable opportunities for shareholders, preventing
dilution. Non-compliance risks court-ordered rectification (Section 123) or oppression
claims (Section 245).
Explanation: Pre-emption rights protect control, a private company hallmark. The
question tests procedural fairness, often examined for shareholder rights. You must
detail steps and legal protections.

Transfer and Transmission of Shares

36. What is the difference between transfer and transmission of shares in a private company?
Answer: Transfer of shares is a voluntary act where a shareholder sells or gifts shares to another
for consideration, while transmission occurs by operation of law, typically upon a shareholder’s
death or bankruptcy, per the textbook. Section 83, Companies Act, Cap 106, governs transfers,
requiring a proper instrument, often restricted by pre-emption clauses (Section 4(1)(a)).
Transmission, under Section 92 and Article 30, Table A, passes shares to legal representatives
 without consideration. For example, selling 500 shares to a buyer is a transfer, while shares
passing to an executor upon death is transmission. Re Kasiita Estates Ltd [1982] HCB 107 upheld
administrators’ rights to register transmitted shares. Transfers need board approval (Article 24),
but transmission requires proof like probate (Section 92). Both update the register (Section
117).
Explanation: The distinction affects procedural and consent requirements, tested in exams for
share movement. You must contrast voluntary versus automatic processes, citing cases like
Kasiita.

37. What is the procedure for transferring shares in a private limited company?
Answer: Transferring shares in a private company, per Section 83, Companies Act, Cap 106, and
the textbook, follows a restricted process due to Section 4(1)(a)’s transfer limits:

o Transfer Form: The transferor signs a transfer instrument (Article 22, Table A), detailing
shares and transferee.

o Delivery: The transferor gives the form and share certificate to the transferee.

o Transferee Action: The transferee signs the form, often witnessed, and pays stamp duty
(1% of value, Stamps Act, Schedule 1).

o Lodgment: The form and certificate are lodged with the company.

o Board Approval: Directors review and approve (Article 24), respecting pre-emption
rights (Tett v Phoenix (1986)).

o Registration: The transferee’s name enters the register (Section 117), with a new
certificate issued (Section 88).

o Filing: The annual return reflects changes (Section 130).

For example, transferring 1,000 shares requires board consent after offering to existing
shareholders. Re Sekiumba Estate Ltd [1978] KCB 285 mandates a proper instrument.
Non-compliance risks refusal (Article 25).
Explanation: Section 83 ensures controlled transfers, protecting private company
structure. The question tests procedural detail, a staple for share transactions. You must
outline steps and restrictions.

38. What documents are required for the transfer of shares, and why are they legally significant?
Answer: Transferring shares requires, per the textbook and Companies Act, Cap 106:

o Transfer Instrument: A signed form (Article 22, Table A), detailing shares and parties,
per Section 83.

o Share Certificate: The original certificate proves ownership (Section 88).

o Board Resolution: Approves the transfer (Article 24), ensuring compliance with Articles.

o Stamp Duty Receipt: Confirms payment (1%, Stamps Act, Schedule 1).
For example, transferring 500 shares involves submitting these to the company
 secretary. Re Sekiumba Estate Ltd [1978] emphasized the instrument’s necessity for
registration. Their significance lies in:

o Validating the transfer, preventing fraud (Section 83).

o Enabling board scrutiny for pre-emption rights (Tett v Phoenix (1986)).

o Updating the register (Section 117), conferring membership (Section 45).

Missing documents risk refusal (Article 25) or disputes (Section 123).
Explanation: Documentation ensures legal certainty, tested in exams for transfer
mechanics. You must list documents and explain their role in governance.

39. What is the procedure for transmission of shares in a private company upon a shareholder’s
death?
Answer: Transmission of shares upon death, per Section 92, Companies Act, Cap 106, and
Article 30, Table A, involves:

o Evidence Submission: The legal representative submits probate or letters of

administration (Section 92).

o Election: The representative elects to register as a member or transfer shares (Article

31), notifying the company in writing.

o Board Approval: Directors accept the election (Article 29), updating the register
(Section 117).

o Certificate Issuance: A new share certificate is issued within two months (Section 88,
Article 8).
For example, an executor inherits 1,000 shares and registers them after probate. Re
Kasiita Estates Ltd [1982] HCB 107 upheld representatives’ registration rights. Non-
registration risks court-ordered rectification (Order 37, Rule 5, CPR). Transmission
ensures estate continuity without board discretion to refuse, unlike transfers (Article
24).
Explanation: Transmission is automatic, protecting heirs. The question tests procedural
differences from transfers, a nuanced exam topic. You must detail steps and cite Kasiita.

40. What constitutes the estate of a deceased member in a private company, and what are their
rights?
Answer: The estate of a deceased member, per the textbook, includes:

o Paid-Up Shares: Shares fully or partially paid, per Article 32, Table A.

o Dividends: Declared but unpaid dividends, payable to the estate (Section 89(2), Article
116).

o Liabilities: Unpaid calls or debts, limited to the share amount (Section 3(6)(b)).
Rights include:

o Registration as a member (Section 45(2)) or transferring shares (Section 84), per Re

Kasiita Estates Ltd [1982].
 o Receiving dividends declared before death (Matthew Rukikaire v Incafex).

o No automatic meeting attendance until registered (Article 8).

For example, an estate with 500 paid-up shares and 100,000/= dividends claims
registration. Section 92 ensures legal representatives’ access, protecting inheritance.
Liabilities persist, enforceable during winding up (Section 245).
Explanation: The estate’s composition balances rights and obligations, tested in exams
for shareholder succession. You must list components and clarify representatives’
entitlements.

41. How does the death of a shareholder affect a pending share transfer, and what are the legal
steps involved?
Answer: The death of a shareholder during a pending transfer transmits shares to their legal
representative, per Section 84, Companies Act, Cap 106, and the textbook. The process
includes:

o Suspension: The transfer pauses, as the deceased’s title passes to the estate (Article 31,
Table A).

o Election: The representative elects to complete the transfer or register the shares
(Article 32), submitting probate (Section 92).

o Board Meeting: Directors approve the elected action (Regulation 30, Companies
(General) Regulations 2016).

o Registrar Notification: Changes are filed (Section 117(1)) via Form 7.

For example, if a transferor dies after signing a transfer form for 1,000 shares, the
executor decides its fate. Re Kasiita Estates Ltd [1982] supports representatives’
authority. The transferee’s rights depend on the instrument’s stage; post-approval
transfers proceed, else they restart.
Explanation: Death shifts control to representatives, a procedural nuance tested in
exams for transfer disputes. You must outline steps and clarify estate rights.

42. What restrictions apply to the transfer of shares in a private company, and how are they
enforced?
Answer: Share transfers in private companies face restrictions under Section 4(1)(a), Companies
Act, Cap 106, and the textbook:

o Pre-emption Clause: Articles require offering shares to existing members first, per Tett v
Phoenix and Investment Co (1986).

o Director Refusal: Directors may decline registration (Article 24, Table A), notifying
reasons within 30 days (Section 87).

o Private Agreements: Non-binding agreements contrary to Articles are void.

Enforcement includes:

o Board Review: Directors ensure compliance with pre-emption or Articles (Article 25).
 o Refusal Notice: Issued if non-compliant (Section 87).

o Court Action: Shareholders may seek rectification (Section 123) if refusals are unfair.
For example, a transfer ignoring pre-emption is rejected, protecting member control. Re
Sekiumba Estate Ltd [1978] mandates proper instruments, reinforcing restrictions.
Explanation: Restrictions maintain private company exclusivity, tested in exams for
governance control. You must list restrictions, enforcement, and remedies.

43. What is the role of a nominee director in the transmission of shares in a single member
company (SMC)?
Answer: In an SMC, a nominee director, per Regulation 11(2), Companies (Single Member)
Regulations 2016, manages share transmission upon the single member’s death, per the
textbook. Their roles include:

o Managing Affairs: Overseeing operations until shares transfer (Regulation 11(2)(a)).

o Notifying Registrar: Filing Form 5 within 15 days, reporting the death and heirs
(Regulation 11(2)(b)).

o Transferring Shares: Facilitating shares to the legal representative (Regulation 11(2)(c)).

o Calling Meetings: Convening a general meeting to elect directors (Regulation 11(2)(d)).

For example, upon death, the nominee ensures continuity by transferring shares to an
executor. Section 92, Companies Act, requires probate evidence. The registrar may
intervene if impeded (Regulation 11(3)), ensuring compliance.
Explanation: The nominee’s role preserves SMC stability, a unique exam topic. You must
detail duties and statutory timelines, citing regulations.

44. What is the role of an alternate nominee director in an SMC’s share transmission?
Answer: An alternate nominee director, per Regulation 3, Companies (Single Member)
Regulations 2016, acts in the nominee director’s absence during a single member’s death, per
the textbook. Their duties mirror the nominee’s under Regulation 11(2):

o Managing the company (Regulation 11(2)(a)).

o Notifying the registrar within 15 days (Form 5, Regulation 11(2)(b)).

o Transferring shares to representatives (Regulation 11(2)(c)).

o Convening a meeting for director elections (Regulation 11(2)(d)).

For example, if the nominee is unavailable, the alternate ensures shares reach the
executor. Section 84, Companies Act, validates transfers by representatives. The
registrar’s oversight (Regulation 11(3)) ensures continuity.
Explanation: The alternate is a backup, critical for SMCs’ governance. The question tests
regulatory nuances, less common but examinable. You must clarify roles and legal
authority.

45. How can an SMC convert to a private company after a member’s death, and what are the
steps?
 Answer: Converting an SMC to a private company post-death, per Section 85, Companies Act,
Cap 106, and the textbook, involves:

o Share Transfer: Shares transmit to the legal representative (Regulation 11(2)(c), Single
Member Regulations 2016).

o Special Resolution: Within 30 days, a resolution alters the Articles for private company
status (Section 85(3)(b)).

o Director Appointment: Members appoint additional directors within 15 days (Section

85(3)(c)).

o Registrar Filing: Notices of conversion (Form 4, Regulation 10(2)(b)) and director

appointments are filed within 60 days.

o Certificate Issuance: The registrar issues a new certificate (Regulation 10(3)), confirming
conversion.
For example, an executor converts the SMC by appointing directors and filing Form 4.
Regulation 10(2) ensures compliance. Non-compliance delays conversion, risking fines
(Section 273).
Explanation: Conversion expands membership, a procedural exam focus. You must
detail statutory steps and timelines, emphasizing registrar certification.

Securities and Borrowing

46. What is a debenture, and how does it differ from a share in raising capital?
Answer: A debenture is a document acknowledging a company’s debt, secured or unsecured,
per Section 1, Companies Act, Cap 106, and Levy v Abercorris State and Slab Co (1887). Shares
represent ownership, raising capital via equity. Debentures raise funds through loans, repayable
with interest, without granting ownership. For example, a 10 million/= debenture at 8% interest
contrasts with 10,000 shares at 1,000/=, which dilute control. Article 79, Table A, permits
debenture issuance, and Section 88 governs share certificates. Debentures risk insolvency on
default (Section 245), while shares risk dividend variability. Bristol Airport v Powdrill (1990)
defines securities, including debentures, as enforceable against assets.
Explanation: The distinction affects control and liability, tested in exams for financing options.
You must compare legal structures and cite cases like Levy.

47. What are the types of debentures, and how do they function in corporate borrowing?
Answer: The textbook and Companies Act, Cap 106, identify debenture types:

o Single/Series: Single debentures cover one loan; series cover multiple facilities (e.g.,
loan and overdraft), per Levy v Abercorris (1887).

o Secured: Backed by charges on assets, with priority clauses (Rother Iron Works v
Canterbury Precision Engineers (1973)).

o Unsecured: Mere promises to repay, riskier for lenders.

o Registered: Recorded in a debenture register (Section 95(3)), transferable.

 o Redeemable: Repayable at a fixed or optional date (Section 105).

o Bearer: Negotiable by delivery, no registration needed.

o Irredeemable: No fixed redemption, payable on winding up.

For example, a secured redeemable debenture for 20 million/= funds expansion,
repayable in 2030. Article 79, Table A, authorizes issuance. Secured debentures
enhance lender confidence, while redeemable ones offer repayment flexibility.
Explanation: Types cater to diverse borrowing needs, tested in exams for debt
structuring. You must list each type, its function, and legal basis.

48. What is a fixed charge, and how does it differ from a floating charge?
Answer: A fixed charge is a security over specific, identifiable assets (e.g., land), restricting their
disposal, per Illingworth v Houldsworth (1904) AC 355, and the textbook. A floating charge
covers a class of assets (e.g., inventory) that changes, allowing use until crystallization, per Re
Yorkshire Woolcombers Association (1903). For example, a fixed charge on a factory prevents
its sale, while a floating charge on stock permits trading until default. Illingworth noted fixed
charges fasten immediately, while floating charges “hover” until events like winding up (Section
245) crystallize them into fixed charges. Fixed charges prioritize creditors, but floating charges
offer operational flexibility. Both require registration (Section 101).
Explanation: The distinction affects asset control and creditor rights, a core exam topic. You
must contrast definitions, cite Illingworth, and explain crystallization.

49. What is a guarantee as a security, and how is it regulated?

Answer: A guarantee is a contract where a third party promises to fulfill a company’s debt if it
defaults, per Section 67, Contracts Act, Cap 284, and the textbook. It can be oral or written,
often securing loans. For example, a director guarantees a 10 million/= bank loan, liable if the
company fails. Section 48(1), Companies Act, permits such contracts. Regulation includes:

o Enforceability: Must meet contract law requirements (offer, acceptance).

o Disclosure: If by a director, conflicts must be declared (Section 194(c)).

o Default: The guarantor pays, pursuing recovery from the company.

Bristol Airport v Powdrill (1990)’s security principle applies indirectly. Guarantees
enhance borrowing credibility but risk guarantor liability.
Explanation: Guarantees are secondary securities, tested in exams for borrowing
support. You must define them, cite Contracts Act, and clarify risks.

50. What is a pledge, and how is it perfected under Ugandan law?

Answer: A pledge involves delivering a chattel or title document to a creditor as security, per the
textbook, with the creditor able to sell on default. For example, pledging machinery for a 5
million/= loan secures funds. Perfection, ensuring enforceability, includes:

o Deed of Pledge: A written agreement details the asset and terms (Section 48(1),
Companies Act).

o Registration: Pledges of chattels are registered under Chattels Securities Act,

No.7/2014, notifying third parties.
 o Possession: The creditor holds the asset or title.
Bristol Airport v Powdrill (1990)’s security enforcement applies. Non-registration risks
unenforceability against liquidators (Section 245). Pledges raise capital by leveraging
assets without ownership loss, unless default occurs.
Explanation: Pledges are tangible securities, tested for perfection processes. You must
outline steps and cite Chattels Securities Act, emphasizing legal validity.

51. What is the process for borrowing funds from a bank, and what role do resolutions play?
Answer: Borrowing from a bank, per the textbook, involves:

o Article Authorization: Articles must permit borrowing (Article 79(1), Table A).

o Board Meeting: Directors pass a resolution (Article 98) approving the loan, recorded in
minutes (Article 86).

o EGM for Excess: If exceeding nominal capital, an EGM passes an ordinary resolution
(Article 50).

o Loan Agreement: Details facility type, amount, interest, and security (Section 48(1)).

o Due Diligence: The bank assesses creditworthiness, reviewing accounts and securities.

o Debenture Issuance: A registered debenture secures the loan (Section 101).

For example, borrowing 50 million/= requires board and EGM resolutions. Photo Focus
Ltd v Mulenga Joseph (1996) upheld such powers. Resolutions ensure director
accountability and shareholder consent, binding the company (Section 194(a)).
Explanation: Resolutions formalize borrowing, tested for governance compliance. You
must detail steps and emphasize Photo Focus.

52. What restrictions apply to a board’s power to borrow, and how can they be overcome?
Answer: Restrictions on borrowing, per Article 79(1), Table A, and the textbook, include:

o Nominal Capital Limit: Borrowing cannot exceed authorized capital without shareholder
approval.

o Articles Constraints: Specific limits or approvals in Articles.

o Director Duties: Section 194(a) mandates acting for company success, avoiding reckless
loans.
Overcoming restrictions involves:

o Ordinary Resolution: An EGM approves excess borrowing (Article 44).

o Capital Increase: A special resolution raises nominal capital (Section 69).

For example, borrowing 60 million/= beyond a 50 million/= cap requires an EGM
resolution. Photo Focus Ltd v Mulenga Joseph (1996) supported borrowing within
Articles, binding the company. Gramophone and Typewriter Ltd v Stanley (1908)
affirmed director control, subject to restrictions. Non-compliance risks loan invalidity or
liability (Section 194).
 Explanation: Restrictions ensure solvency, tested for director limits. You must list
constraints, remedies, and cite cases like Photo Focus.

53. What is the role of a loan agreement in corporate borrowing, and what key terms must it
include?
Answer: A loan agreement formalizes borrowing terms between a company and lender, per
Section 48(1), Companies Act, Cap 106, and the textbook. It binds the company, ensuring
clarity. Key terms include:

o Facility Type: E.g., term loan or overdraft.

o Amount: Total loan, e.g., 30 million/=.

o Interest Rate: Rate and computation method, e.g., 10% annually.

o Collateral: Securities like charges (Section 101).

o Penalties: Default consequences, e.g., higher interest.

o Purpose: Intended use, e.g., expansion.

o Realization: Security enforcement procedures (Bristol Airport v Powdrill (1990)).

For example, an agreement for a 20 million/= loan details repayment over 5 years.
Photo Focus Ltd v Mulenga Joseph (1996) upheld such contracts’ enforceability. The
agreement protects both parties, reducing disputes, and supports due diligence.
Explanation: Agreements are contractual safeguards, tested for borrowing mechanics.
You must list terms and link to statutory authority.

Capital Markets and Charges

54. What are capital markets, and how do they facilitate corporate financing?
Answer: Capital markets are platforms where companies raise funds by issuing securities, per
the textbook and Eric Kenneth Lokolong’s definition as “meeting places for surplus capital
seekers and investors.” They include:

o Debt Markets: Issuing bonds for loans, repayable with interest.

o Equity Markets: Issuing shares for ownership stakes.

For example, a company raises 100 million/= by listing shares on the Uganda Stock
Exchange (USE). Sections 38–48, Companies Act, and Capital Markets Authority Act
regulate issuances, requiring prospectuses. Markets provide access to diverse investors,
unlike private financing, but involve regulatory costs. Matthew Rukikaire v Incafex’s
share issuance principles apply indirectly. Capital Markets Authority (CMA) and USE
ensure compliance, enhancing trust.
Explanation: Markets broaden financing, tested for public company transitions. You
must define markets, contrast debt/equity, and cite regulatory frameworks.

55. What is the procedure for a company to go public and sell shares?
Answer: Going public involves converting to a public company and selling shares, per the
textbook and Companies Act, Cap 106. The procedure includes:
 o Shareholder Resolution: A special resolution converts the company (Section 144), filed
with the registrar.

o Board Resolution: Directors authorize share sales (Article 98, Table A).

o Prospectus: Prepared under Sections 38–48 and Capital Markets (Prospectus

Requirements) Regulations, disclosing purpose, legal status, rights, and 5-year
financials.

o CMA Approval: The prospectus is approved by the Capital Markets Authority.

o USE Listing: An application to the Uganda Stock Exchange is approved, allowing share
trading.

o Public Offer: Shares are offered via public documents.

For example, a company converts, issues a CMA-approved prospectus, and lists on USE.
Section 38 ensures transparency, protecting investors. Non-compliance risks CMA
sanctions or share voidance (Section 273).
Explanation: Going public is complex, tested for regulatory compliance. You must detail
steps, emphasizing prospectus and CMA roles.

56. What must a prospectus disclose when a company goes public, and why is it critical?
Answer: A prospectus, per Sections 38–48, Companies Act, Cap 106, and Capital Markets
(Prospectus Requirements) Regulations, discloses:

o Purpose of Issue: E.g., funding expansion.

o Legal Status: Company’s incorporation and structure.

o Rights: Shareholder, director, and employee rights (e.g., voting, dividends).

o Financial Statements: Five-year financials, showing performance.

For example, a prospectus for a 50 million/= share issue details growth plans and profits.
Section 38 mandates accurate disclosure to inform investors, preventing fraud.
Matthew Rukikaire v Incafex’s transparency principle applies. Non-compliance risks
CMA rejection, fines, or investor lawsuits (Section 273). The prospectus is critical for
investor trust and regulatory approval, ensuring market integrity.
Explanation: Disclosure protects investors, tested for public offerings. You must list
requirements and emphasize legal consequences.

57. What is a charge, and how does it function as a security in corporate borrowing?
Answer: A charge is a security interest over company assets to secure debt repayment, per
Illingworth v Houldsworth (1904) and the textbook. It can be fixed (specific assets) or floating
(changing assets). Section 101, Companies Act, Cap 106, requires registration within 42 days.
For example, a fixed charge on land secures a 20 million/= loan, enforceable on default (Bristol
Airport v Powdrill (1990)). Charges function by:

o Granting creditors rights to assets (Section 104).

o Prioritizing repayment in insolvency (Section 245).

 o Allowing asset use (floating charges) until crystallization.
Re Yorkshire Woolcombers (1903) defined floating charges’ flexibility. Charges enhance
borrowing capacity but risk asset loss if unregistered (Section 105).

Below is the continuation and completion of the 70 possible oral questions for your Corporate and
Commercial Practice exam at the Law Development Centre, focusing on Company Finance: Raising and
Maintenance of Share Capital, based on the provided textbook content by Isaac Christopher Lubogo.
The remaining answers for Questions 57–70 are provided with detailed and accurate responses,
incorporating provisions from the Companies Act, Cap 106, case law, regulations, and practical
examples. Each answer is structured for oral delivery, ensuring clarity, depth, and alignment with the
textbook to aid your exam preparation as a student. The responses maintain consistency with the earlier
format, addressing statutory requirements, procedural steps, case law applications, and explanations to
enhance your understanding and readiness for the oral exam.

Questions and Answers (Continued)

Capital Markets and Charges (Continued)

57. What is a charge, and how does it function as a security in corporate borrowing?
Answer: A charge is a security interest over a company’s assets to secure debt repayment,
defined in Illingworth v Houldsworth (1904) AC 355 as either fixed (specific assets) or floating
(changing assets), per the textbook. Section 101, Companies Act, Cap 106, mandates
registration within 42 days to be enforceable. For example, a fixed charge on a factory worth 50
million/= secures a bank loan, allowing the lender to seize it on default, as per Bristol Airport v
Powdrill (1990) Ch 744, which clarified security enforcement. Charges function by:

 Granting Rights: Creditors gain priority over assets (Section 104), ensuring repayment in
insolvency (Section 245).

 Operational Flexibility: Floating charges allow asset use (e.g., inventory sales) until
crystallization, per Re Yorkshire Woolcombers Association Ltd (1903).

 Enhancing Credit: Charges reassure lenders, enabling larger loans.

A company might use a floating charge on stock to borrow 20 million/=, continuing trading until
default triggers crystallization. Non-registration voids charges against liquidators (Section 105),
risking creditor losses, as in Kasozi v M/S Male Constructions Co Ltd [1981] HCB 26. Charges
balance borrowing capacity with asset risk, critical for financial strategy.
Explanation: Charges are pivotal securities, distinguishing fixed and floating types. Illingworth’s
definitions and Section 101’s registration rule are exam staples, testing your grasp of security
mechanics. You must define charges, explain their role in borrowing, and highlight registration’s
importance, supported by cases.

58. What is the procedure for registering a charge, and why is it mandatory?
Answer: Registering a charge ensures its enforceability, per Section 101, Companies Act, Cap
106, and the textbook. The procedure includes:
 Submission: Within 42 days of creation, file Form 4 (Companies (General) Regulations 2016)
with particulars and the charge instrument (e.g., debenture deed) to the registrar (Section
101(1)). For foreign charges, a verified copy suffices (Section 101(4)).

 Payment: Pay a 50,000/= fee, per Finance Act, Section 5, 1st Schedule, and Companies (Fees)
Rules, SI 110-3.

 Certification: The registrar issues a certificate of registration, stating the secured amount
(Section 104), conclusive evidence of compliance, per Leicester v The Company (1908) 1 Ch 152.
For example, registering a 30 million/= debenture charge involves filing Form 4 within 42 days.
Registration is mandatory to:

 Alert Creditors: It notifies stakeholders of encumbered assets, per Section 104(1), fostering
transparency.

 Ensure Priority: Registered charges rank ahead in insolvency (Section 245).

 Avoid Invalidity: Unregistered charges are void against liquidators, as in Kasozi v M/S Male
Constructions [1981].
Non-compliance incurs a 50-currency-point fine (Section 106(3)).
Explanation: Section 101’s 42-day rule protects creditors, a key governance principle. The
question tests procedural compliance, often linked to borrowing scenarios in exams. You must
outline steps, fees, and the rationale for registration, citing Leicester for evidential weight.

59. What is meant by the perfection of securities, and how is it achieved for charges?
Answer: Perfection refers to additional steps to make a security interest (e.g., charge) effective
against third parties, especially in default, per the textbook. For charges, perfection is achieved
through:

 Registration: File Form 4 with the registrar within 42 days (Section 101(1), Companies Act, Cap
106), including the charge instrument. For mortgages, time runs from filing with the land
registry (Section 102(4)).

 Payment: Pay 50,000/= per Companies (Fees) Rules, SI 110-3.

 Certificate Issuance: The registrar issues a certificate (Section 104), conclusive per Leicester v
The Company (1908).

 Internal Records: Update the company’s register of charges (Section 102(1)).

For example, perfecting a 10 million/= floating charge on inventory involves filing Form 4 and
paying fees. Perfection ensures:

 Enforceability: Charges bind liquidators and creditors (Section 105).

 Priority: Registered charges take precedence in winding up (Section 245).

Non-perfection voids the charge, as in Kasozi v M/S Male Constructions [1981], leaving lenders
unsecured. Bristol Airport v Powdrill (1990)’s security principle underscores perfection’s role in
creditor protection.
Explanation: Perfection secures creditor rights, a nuanced exam topic. Section 101’s registration
 is critical, often tested with default scenarios. You must detail steps and consequences, linking
to Kasozi.

60. What are the consequences of failing to perfect a charge, and how can they be mitigated?
Answer: Failing to perfect a charge by registering within 42 days (Section 101, Companies Act,
Cap 106) has serious consequences, per the textbook:

 Invalidity: The charge is void against liquidators and creditors (Section 105(1)), as held in Kasozi
v M/S Male Constructions Co Ltd [1981] HCB 26, denying lenders asset access.

 Fines: The company and officers face a 50-currency-point fine (Section 106(3)); for acquired
property charges, it’s 25 points (Section 105(3)).

 Loss of Priority: Unregistered charges rank below registered ones in insolvency (Section 245).
Mitigation includes:

 Late Registration: Apply for a court extension under Section 101(6), proving delay was
accidental.

 New Charge: Create a replacement charge and register promptly, with creditor consent.

 Negotiation: Renegotiate loan terms to avoid liquidation claims.

For example, an unregistered 20 million/= debenture risks voidance, but a court extension may
save it. Leicester v The Company (1908) emphasizes registration’s conclusiveness, underscoring
perfection’s necessity.
Explanation: Non-perfection undermines security, tested for creditor remedies. Section 105’s
voidance rule is critical, requiring procedural awareness. You must list consequences, mitigation
options, and cite Kasozi.

61. How does a floating charge crystallize, and what are the legal effects of crystallization?
Answer: A floating charge, covering changing assets like stock, crystallizes when it converts to a
fixed charge, fastening onto specific assets, per Illingworth v Houldsworth (1904) and the
textbook. Crystallization occurs when:

 Receiver Appointed: A court or creditor appoints a receiver (Section 245).

 Winding Up Commences: Liquidation begins, per Section 245.

 Business Ceases: The company stops operating as a going concern.

Legal effects include:

 Asset Restriction: The company cannot dispose of charged assets without creditor consent, per
Re Yorkshire Woolcombers (1903).

 Priority: The charge gains fixed charge status, ranking above unsecured creditors in insolvency
(Section 245).

 Enforcement: Creditors can seize assets to recover debts (Bristol Airport v Powdrill (1990)).
For example, a floating charge on inventory crystallizes upon liquidation, barring sales. Section
101’s registration ensures enforceability. Non-registration voids the charge (Section 105), as in
Kasozi v M/S Male Constructions [1981].
 Explanation: Crystallization shifts flexibility to security, a key exam concept. Illingworth’s
distinction is often tested with insolvency scenarios. You must detail triggers, effects, and
statutory links.

62. What is the role of the Capital Markets Authority (CMA) in a company’s public share offering?
Answer: The Capital Markets Authority (CMA), per the Capital Markets Authority Act and the
textbook, regulates public share offerings to ensure investor protection. Its roles include:

 Prospectus Approval: Reviewing and approving the prospectus under Sections 38–48,
Companies Act, Cap 106, and Capital Markets (Prospectus Requirements) Regulations,
ensuring accurate disclosures (e.g., financials, share purpose).

 Compliance Oversight: Ensuring adherence to listing rules and transparency standards.

 Investor Safeguards: Preventing fraud through due diligence requirements.

For example, a company issuing 100 million/= in shares submits a prospectus detailing five-year
financials, which CMA approves before Uganda Stock Exchange (USE) listing. Non-compliance
risks rejection or fines (Section 273). Matthew Rukikaire v Incafex (SCCA No.3/2015)’s
transparency principle supports CMA’s role indirectly. The CMA ensures market integrity,
enabling public trust in capital markets.
Explanation: The CMA’s regulatory oversight is critical for public offerings, tested for compliance
processes. You must outline its functions, prospectus focus, and link to investor protection.

63. How does the Uganda Stock Exchange (USE) facilitate a company’s public share issuance?
Answer: The Uganda Stock Exchange (USE), per the textbook, is a platform for trading securities,
facilitating public share issuances by:

 Listing Approval: Reviewing applications post-CMA prospectus approval, ensuring compliance

with USE rules.

 Trading Platform: Enabling share sales to the public after listing, providing liquidity.

 Market Visibility: Enhancing investor access to the company’s shares.

The process involves:

 Filing resolutions converting to a public company (Section 144, Companies Act).

 Submitting a CMA-approved prospectus (Sections 38–48).

 Gaining USE approval, followed by public trading.

For example, a company lists 50,000 shares on USE, raising 50 million/=. Section 38’s disclosure
rules ensure investor information. The USE complements CMA oversight, per Capital Markets
(Prospectus Requirements) Regulations, but non-compliance risks delisting or fines (Section
273).
Explanation: The USE operationalizes public offerings, tested for capital market roles. You must
detail its listing function and statutory alignment, emphasizing market access.

Rights of Shareholders and Subscribers

64. What are the rights of subscribers to a company’s Memorandum, and how do they differ from
other shareholders?
Answer: Subscribers to the Memorandum, per Section 6(1), Companies Act, Cap 106, and the
textbook, are initial members signing the MOA during formation. Their rights, per Section 45(1),
include:

 Automatic Membership: Deemed members upon registration, entered in the register (Section
117).

 Share Entitlement: Right to allotted shares without preconditions, unless Articles specify
otherwise.

 Voting and Dividends: Standard shareholder rights post-registration (Section 137(e), Article
116, Table A).
Other shareholders acquire membership by agreement post-formation (Section 45(2)), often
paying for shares immediately. In Matthew Rukikaire v Incafex (SCCA No.3/2015), the court
held subscribers’ membership persists despite non-payment, unlike others liable for calls
(Article 15). For example, a subscriber allotted 1,000 shares retains rights even if unpaid, but a
later shareholder risks forfeiture (Article 35). Subscribers’ automatic status ensures foundational
control, distinguishing them from subsequent investors.
Explanation: Subscribers’ unique status reflects formation roles, tested for membership
distinctions. Rukikaire’s ruling is key, requiring you to contrast rights and cite statutory
provisions.

65. What remedies are available to a subscriber whose name is omitted from the register of
members?
Answer: A subscriber omitted from the register, per Section 45(1), Companies Act, Cap 106, has
remedies, per the textbook:

 Internal Request: Submit a letter or statutory declaration to the company, requesting entry,
supported by the MOA showing subscription.

 Board Action: The board updates the register under Regulation 8, Companies (Powers of
Registrar) Regulations 2016, filing Form 7.

 Court Petition: If refused, petition the High Court for rectification under Section 121(1), via
chamber summons (Order 38, Rule 4, CPR), as in Mawogola Farmers v Kayanja (1971).
For example, a subscriber for 500 shares omitted due to error can demand correction, escalating
to court if needed. Matthew Rukikaire v Incafex (SCCA No.3/2015) affirmed subscribers’
registration rights, ensuring membership. Non-rectification denies voting (Section 137(e)) or
dividends (Article 116), risking oppression claims (Section 245).
Explanation: Section 121 protects subscribers’ foundational rights, tested for rectification
processes. You must outline remedies, emphasizing court recourse and Rukikaire’s support.

66. What are the rights of shareholders in a company, and how do they influence corporate
governance?
Answer: Shareholders’ rights, per the textbook and Companies Act, Cap 106, empower them to
influence governance:
  Voting: One vote per share at general meetings (Section 137(e), Article 62, Table A), electing
directors or approving resolutions (e.g., capital increases, Section 69).

 Dividends: Receiving profits when declared (Article 116), per Matthew Rukikaire v Incafex.

 Information: Accessing the register (Section 117), minutes (Section 152), and financials (Section
134).

 Pre-emption: Priority in new share issues (Section 4(1)(a)), preventing dilution, per Tett v
Phoenix (1986).

 Remedies: Petitioning for oppression relief (Section 245) or rectification (Section 123).
For example, shareholders voting at an AGM to remove a director shape management. These
rights ensure accountability, balancing director powers (Section 194). Borland’s Trustee v Steel
Bros (1901) defines shares as rights bundles, reinforcing governance roles. Non-compliance risks
shareholder lawsuits.
Explanation: Shareholder rights drive democratic control, a core exam theme. You must list
rights, link to governance, and cite cases like Tett, showing their practical impact.

67. How does non-payment for subscribed shares affect a shareholder’s rights, and what are the
company’s remedies?
Answer: Non-payment for subscribed shares, per Article 15, Table A, and the textbook, impacts
rights but not membership, per Matthew Rukikaire v Incafex (SCCA No.3/2015). Effects include:

 Voting Suspension: Article 65, Table A, suspends voting rights at general meetings until
payment, limiting influence (Section 137(e)).

 Dividend Withholding: Dividends may be withheld until calls are paid (Article 116).

 Membership Retention: Membership persists, as Rukikaire held non-payment doesn’t negate

status (Section 45).
Company remedies include:

 Call Notices: Demand payment via a 14-day notice (Article 15(3)), not exceeding one-fourth of
nominal value (Article 15(2)).

 Forfeiture: If unpaid, issue a further 14-day notice (Article 34), followed by a board resolution to
forfeit (Article 35), as in Trevor v Whitworth (1887).

 Lien: Claim a lien on shares for debts (Article 11).

For example, a shareholder owing 500,000/= loses voting rights and risks forfeiture of 1,000
shares. Section 19(2) deems calls a debt, enforceable in court.
Explanation: Non-payment balances shareholder obligations with company enforcement, tested
for call procedures. You must detail effects, remedies, and cite Rukikaire.

Miscellaneous

68. What is the process of forfeiture of shares, and how does it comply with statutory
requirements?
 Answer: Forfeiture of shares occurs when shareholders fail to pay calls, allowing the company to
reclaim shares, per Article 33, Table A, and the textbook. The process includes:

 Call Resolution: Directors resolve to call unpaid amounts, not exceeding one-fourth of nominal
value (Article 15(2)), issuing a 14-day demand notice (Article 15(3)).

 Non-Compliance Notice: If unpaid, a further 14-day notice demands payment with interest
(Article 34).

 Forfeiture Resolution: Directors pass a resolution to forfeit shares (Article 35), notifying the
shareholder.

 Re-issue/Sale: Forfeited shares are sold or cancelled (Article 36), with no return of allotment
required (Section 59).
For example, failing to pay a 250/= call on a 1,000/= share leads to forfeiture. Trevor v
Whitworth (1887) held forfeited shares revert to the company, relieving future liabilities but
retaining paid amounts. Section 19(2) ensures calls are debts, and Article 37 holds ex-
shareholders liable for prior debts. Compliance with notice periods protects fairness, avoiding
disputes (Section 123).
Explanation: Forfeiture enforces payment discipline, regulated by Table A. The question tests
procedural compliance, often linked to calls in exams. You must outline steps, statutory
safeguards, and Trevor’s rationale.

69. How can a company use a share premium account, and what are the legal restrictions?
Answer: A share premium account holds excess amounts from issuing shares above nominal
value, per Section 64(1), Companies Act, Cap 106, and the textbook. Permitted uses (Section
64(2)) include:

 Paying Unissued Shares: Allotting bonus shares to members.

 Writing Off Expenses: Covering preliminary costs or issue discounts.

 Paying Premiums: On redemption of debentures or preference shares (Section 66).

For example, a 5 million/= premium from issuing 10,000 shares at 1,500/= (nominal 1,000/=) can
redeem preference shares. Restrictions include:

 Capital Treatment: Premiums are treated as paid-up capital, prohibiting dividends (Section
64(1)).

 Board Approval: Uses require a board resolution (Article 98, Table A).

 Transparency: Uses must be reported in financials (Section 134).

Hilder v Dexter (1902) upheld premium issuances, supporting Section 64’s framework. Misuse
risks fines (Section 273) or director liability (Section 194), as premiums protect capital integrity,
per Trevor v Whitworth (1887).
Explanation: Section 64’s restrictions ensure capital maintenance, tested for financial
management. You must list uses, restrictions, and cite Hilder, linking to governance.
70. What were the key findings of the Supreme Court in Matthew Rukikaire v Incafex (U) Ltd, and
how do they apply to company finance?
Answer: In Matthew Rukikaire v Incafex (U) Ltd (SCCA No.3/2015), the Supreme Court made
key findings relevant to company finance, per the textbook:

 Membership Modes: Membership arises by subscribing to the MOA (Section 6(1)) or agreeing
post-formation (Section 45(2)).

 Allotment Process: Allotment is a contract assigning shares, requiring registration to confer

membership (Section 117). Issuance completes title via certificates or registration (Section 88).

 Registration Duty: Companies must enter allottees in the register, with annual returns as
membership evidence (Section 130).

 Payment Obligation: Shareholders pay for shares during operations (calls, Article 15) or winding
up (Section 245), but non-payment doesn’t negate membership.

 Non-Cash Contributions: Investments like vehicles or land (e.g., Rukikaire’s contributions)

evidence shareholding.
Application to finance:

 Ensures clear membership for capital raising, avoiding disputes over rights (Section 137(e)).

 Validates non-cash allotments (e.g., sweat equity, Section 59), broadening capital sources.

 Reinforces call enforcement, securing paid-up capital (Section 19(2)).

For example, a shareholder’s unregistered allotment is valid if listed in returns, ensuring
dividend rights. The findings align with Borland’s Trustee v Steel Bros (1901), defining shares as
rights bundles, guiding finance transparency.
Explanation: Rukikaire clarifies membership and payment, critical for exam questions on
allotment and shareholder status. You must summarize findings, apply them to finance, and link
to statutory provisions like Section 45.