BRIEF FACTS.

Swift & Match Pharmaceuticals Ltd. has retained M/S “Legal Doc Advocates” and is
exploring new investment opportunities amid Uganda’s growing demand for locally made
ARVs, following USAID’s suspension under President Trump. The company has engaged
African Businesses Matter Fund LLP, which is willing to lend USD 2,000,000 at 3% per
annum but demands profit-sharing, control over key executive appointments, and board
representation, with security including company assets and potentially shareholders' shares.
Meanwhile, Swift Bank's MD, Nsimbi Binojjo, seeks to channel the loan through the
company’s bank account for transaction benefits, offering a dedicated Relationship Manager
and corporate desk but requiring a risk assessment. Additionally, the company plans to issue
more shares to the public and institutional investors like NSSF while granting bonus shares to
existing shareholders.

ISSUES.

Task 1
1.Whether there are any restrictions on the Board, on its powers to borrow from the Fund in
the circumstances.
2.What are the necessary considerations that will inform your assessment in light of the
provisions of the Companies Act, Cap 106.
3.What are the procedural steps of venture capital financing as a form of external corporate
finance in the above set of facts?
4.What is a brief legal opinion for the Managing Director of Swift Bank on the pros and cons
of venture capital and mezzanine loans in the context of corporate financing in Uganda.
LAW APPLICABLE.
1. The Companies Act Cap 106 including Table A.
2. The Contracts Act, Cap 284
3. The Stamp Duty Act Cap 339
4. The Income Tax (Amendment) Act, Cap 338
5. The Companies (General) Regulations SI No. 7 of 2016

RESOLUTION.
ISSUE 1. Whether there are any restrictions on the Board, on its powers to borrow from
the Fund in the circumstances.

Under the Companies Act, Cap 106 of Uganda:

Sect 2 of the Companies Act defines a director to include any person occupying the
position of director by whatever name called and shall include a shadow director.

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Board Powers to Borrow:

 According to section 50 of the Companies Act, Cap 106 a company's board of

directors is vested with the power to bind the Company, provided that these powers
are within the limitations prescribed by the company's articles of association.
 Restrictions may arise if:
o The articles impose a cap on borrowing.
o The borrowing exceeds authorized capital or prescribed limits.

From the facts “The Share capital of the company was UGX Two Billion Shillings Only
(UGX 2,000,000,000) which was later varied to (UGX 5,000,000,000) therefore the
directors can’t borrow beyond the share Capital.

Approval by Shareholders:

If the company's borrowing limit is stipulated not to be above a certain amount, the
board may need approval from shareholders in a general meeting.

 Sect 144 of Cap 106 provides for a special resolution.

 Duties and Responsibilities:
 Sect 194 of the Companies Act provide for duties which include
 (a) To act in a manner that promotes the success of the business of the Company
 (b) To exercise a degree of skill and care as a reasonable person would do looking
after their own business.
 (c) To act in good faith in the interests of the Company as a whole.

From the facts the directors, Adong Matilda (“Adong”), James Mugo (“Mugo) and
Wasswa Muto own a company called Swift & Match Pharmaceuticals Limited (“the
company”) therefore they have a statutory duty to Act within the interest of the Company.

Ultra Vires Doctrine:

 Borrowing outside the scope of authority provided by the articles or memorandum of

association is considered ultra vires, making it potentially void.
 In Ashbury Railway Carriage v Riche (1875) LR The court stated that a Company
only had legal capacity to do what its objects clause enabled it to do.

 The board should review the company's articles of association to confirm that
borrowing powers are not restricted. If they are restricted, appropriate resolutions
should be passed to obtain shareholder approval.
 Regulations 79(1) of Table A provides the directors may exercise all the powers of
the Company to borrow money, and to mortgage but shall not without the previous
approval of the Company

From the facts the objects clause of the company is tied to one business activity-
pharmaceuticals because the shareholders want to pursue a focused single-business
strategy therefor they cannot borrow for another object outside the articles.

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ISSUE 2. What are the necessary considerations that will inform your assessment in light
of the provisions of the Companies Act, Cap 106.?

1.Capacity to Borrow:

 Sect 20 of Cap 106 look at the Certificate of incorporation which shall be conclusive
evidence that all the requirements of the Act in respect of registration have been
Complied with.

From the facts the Company varied its share Capital to (UGX 5,000,000,000)

2.Verification of the company's memorandum and articles of association to ensure

borrowing capacity and adherence to statutory limits.

 Sect 144 of Cap 106 there must be authorisation from shareholders by way of
Aspecial resolution.
 Sect 146(4)a of Cap 106 such resolution must be registered with the registrar.
 Sect 6 (4) (a) states that incase of a Company having share Capital, the memorandum
shall state the amount of share Capital with which the Company proposes to be
registered and the division of that share Capital into shares of a fixed Amount.

From the facts the objects clause of the company is tied to one business activity-
pharmaceuticals because the shareholders want to pursue a focused single-business strategy.

3.Solvency and Financial Status:

 Analysis of the financial health of the company to ensure it can service the loan
without breaching solvency thresholds.
 Sect 150 (1) of Cap 106 provides that every Company shall cause to be kept in the
English language proper books of Accounts with respect to all sums of money
received and expended by the Company, sales and purchases and(c) assets and
liabilities.

4.Existing Charges:

 Verification of existing secured and unsecured debts, including any floating charges
that may affect the company’s assets.
 Sect 110 of the Companies Act Cap 106 provides that every charge created by a
company is void against any creditor unless it’s registered with the Registrar within
45 days.

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ISSUE 3. What are the procedural steps of venture capital financing as a form of external
corporate finance in the above set of facts?

Sect 48 of the Company Act Cap 106 provides that a company may make a contract, by
execution under its common seal or on behalf of the company, by any person acting under its
authority, express or implied.

Section 48(2)(a) Companies Act Cap 106: Contracts between companies and individuals
must be in writing and signed, with the latter represented by an authorized person (expressly
or impliedly).

Section 194(a) Companies Act Cap 106: Directors have a duty to act in a way that promotes
the success of the company.

Section 50(1) Companies Act Cap 106: Directors have the power to bind the company in
transactions.

Section 51 Companies Act Cap 106: A party to a transaction with a company is not
obligated to inquire whether the transaction is permitted by the company’s memorandum or if
there are limitations on the board’s power to bind the company.

Summary of Procedural Steps for Venture Capital Financing from the above set of
facts.

1. Convening a Board Meeting: The directors must hold a board meeting to decide on
securing equity from a venture capitalist. This step is aligned with their authority
under Article 79(1) of Table A of the Companies Act, Cap 106.
2. Passing a Special Resolution: The company must pass a special resolution to secure
financing, which needs to be registered with the registrar of companies and
accompanied by the requisite fees.
3. Execution of an Agreement: The agreement for equity must be formally executed,
detailing the terms between the company and the investor. section 50 of the
Companies Act, Cap 106

Key Procedural Steps in Venture Capital Financing:

1. Preparation of a Business Plan: Companies must prepare a detailed business plan

that includes a description of the business opportunity, market size, management
team, competitive analysis, solutions, and financial projections.
2. Identification of the Right Venture Capitalist: The company identifies a suitable
venture capital partner, ensuring that the investor has relevant industry experience.
3. Meeting the Venture Capitalist: Investment bankers facilitate meetings between the
company and potential investors. Presentations are made to secure investor interest.
4. Due Diligence: A thorough examination of the business and legal aspects is
conducted to assess risks and develop a mitigation strategy. The investor uses this
phase to decide on proceeding with the investment.

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 5. Signing the Term Sheet: This non-binding document outlines the main terms,
including company valuation and structure of the transaction. Negotiation occurs, and
once agreed, legal documentation is prepared.
6. Execution of the venture capital agreement and Venture Capital Support: After
the term sheet, venture capitalists engage actively in the company’s operations,
typically disbursing funds in rounds based on milestone achievements.

ISSUE 4. What is a brief legal opinion for the Managing Director of Swift Bank on the
pros and cons of venture capital and mezzanine loans in the context of corporate financing
in Uganda.
From. E3 and Co. Advocates
P.O. Box ……
LDC, Kampala.
To. The Managing Director
Swift Bank. P.O. Box Kampala.

Date 19th November 2024.

RE Legal Opinion on the pros and cons of venture capital and mezzanine loans in the
context of corporate financing in Uganda

Sect 48 of the Company Act Cap 106 provides that a company may make a contract, by
execution under its common seal or on behalf of the company, by any person acting under its
authority, express or implied.

In Vintage Mazzanine Fund 11 Partnership v Uganda Registration Services Bureau.

Simba Properties Investment Company Ltd Misc Cause No.205 of 2021. Where Simba
Properties Investment Co. Ltd borrowed and received Us $ 10,000,000 Pursuant to
mezzanine facility agreement and the directors offered their shares as security in other two
Companies. The court held that a foreign partnership that does not use the surnames must be
registered with the Business Names Registry at Uganda Services Bureau to be able to do
business in its name.

This decision is relevant to venture Capitalists, Private equity funds as well Mezzanine
Finance.

Venture Capital (VC):

Venture capital is a form of private equity financing that is provided to start-ups and early-
stage, high-potential companies. These companies typically have innovative business ideas
but lack sufficient cash flow or collateral to secure traditional bank loans. Venture capitalists

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invest in exchange for equity, expecting high returns when the company succeeds through
mechanisms such as an IPO (Initial Public Offering) or acquisition. VC firms often provide
strategic guidance, mentorship, and access to networks alongside funding.

Private Equity (PE):

Private equity refers to investment capital that is invested into more mature companies that
are not publicly traded. PE firms acquire partial or full ownership of companies to restructure
them, optimize operations, and increase their profitability over several years. These
investments often involve leveraged buyouts, where the acquisition is financed with
borrowed funds. The goal of private equity is to improve the company's value and sell it for a
profit through a public offering, merger, or private sale.

Mezzanine.Finance.
Mezzanine finance is a hybrid form of corporate financing that combines elements of both
debt and equity. It is typically used by companies looking to fund expansion or acquisitions
and is positioned between senior debt and equity in the capital structure. Mezzanine financing
is structured as debt that can be converted into equity or has equity-like features, such as
warrants or options.

VENTURE CAPITAL

Venture capital is a form of equity financing where investors provide capital to high-potential
start-ups or growing businesses in exchange for equity stakes.

2.3 Advantages

1. Equity Financing – Venture capital does not burden the company with debt
obligations.
2. Business Expertise – Investors provide strategic advice, management expertise, and
networks.
3. Growth Potential – Enables businesses to scale up quickly.
4. Risk Sharing – Investors assume risk, reducing financial pressure on founders.

2.4 Disadvantages

1. Equity Dilution – Founders lose ownership and control.

2. Exit Strategies – Investors may demand high returns, requiring IPOs or acquisitions.
3. Strict Due Diligence – Investors impose stringent requirements before funding.

2.5 Relevant Case Law

 MTN Uganda Limited v. URA (2019) – Demonstrated the complexities of foreign

investment and tax obligations in Uganda. Where the issue was whether the taxable
value of excise duty on airtime was to be charged on usage or at the point of sale.
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3. MEZZANINE LOANS

3.1 Definition

A mezzanine loan is a hybrid of debt and equity financing, where lenders provide capital with
an option to convert debt into equity in case of default.

3.2 Legal Framework

Sect 48 of the Company Act Cap 106 provides that a company may make a contract, by
execution under its common seal or on behalf of the company, by any person acting under its
authority, express or implied.

3.3 Advantages

1. Flexible Repayment – Interest payments may be deferred or linked to company

performance.
2. Retained Ownership – Unlike venture capital, founders retain control.
3. Tax Benefits – Interest payments are tax-deductible under Ugandan tax law.

3.4 Disadvantages

1. Higher Interest Rates – Due to the risky nature of mezzanine loans.

2. Risk of Equity Conversion – Defaulting could result in loss of ownership.
3. Complexity in Structuring – Negotiating terms can be time-consuming and costly.

3.5 Relevant Case Law

In Vintage Mazzanine Fund 11 Partnership v Uganda Registration Services Bureau.

Simba Properties Investment Company Ltd Misc Cause No.205 of 2021.

Where Simba Properties Investment Co. Ltd borrowed and received Us $ 10,000,000
Pursuant to mezzanine facility agreement and the directors offered their shares as security in
other two Companies. The court held that a foreign partnership that does not use the
surnames must be registered with the Business Names Registry at Uganda Services Bureau to
be able to do business in its name

4. CONCLUSION & RECOMMENDATION

Both venture capital and mezzanine loans present viable corporate financing options, each
with distinct legal and financial implications. Venture capital is ideal for start-ups seeking
growth without immediate financial strain but involves equity dilution. Mezzanine loans
provide flexible debt financing while retaining ownership, though they come with higher
interest rates and conversion risks.

Recommendation:
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  For high-growth businesses with strong expansion potential, venture capital is
preferable.
 For established businesses seeking growth financing without loss of control,
mezzanine loans are suitable.

Should Swift Bank consider offering these financing options, compliance with the
Companies Act, Cap 106 and due diligence requirements must be ensured.

Prepared by:
...............................
Legal Counsel, Swift Bank

Task 2
1.What is the meaning of financial instruments called convertible notes and Simple
Agreements for Equity (SAFEs)?
2.What form of funding can a company that has stabilised, cash flow positive but still has
senior debt, and wishes to expand further can undertake?
3.What are the possible exit strategies that are available for the shareholders that can bring
new financing to the business and keep it running as a going concern.
LAW APPLICABLE.
1. The Companies Act Cap 106 including Table A.
2. The Contracts Act, Cap 284
3. The Stamp Duty Act Cap 339
4. The Income Tax Act, Cap 338
5. The Companies (General) Regulations SI No. 7 of 2016
6. The Capital Markets Authority Act Cap 64
7. The Capital Markets Authority (Licensing) (Amendment) Regulations, 2016
8. The Capital Markets (Conduct of Business) Regulations, 1996

RESOLUTION.

ISSUE 1. What is the meaning of financial instruments called convertible notes and
Simple Agreements for Equity (SAFEs)?

Sect 48 of the Company Act Cap 106 provides that a company may make a contract, by
execution under its common seal or on behalf of the company, by any person acting under its
authority, express or implied.

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Simple Agreements for Equity (SAFEs) and Convertible Notes are both financial
instruments commonly used in venture capital transactions. They serve as a way for early-
stage start-ups to raise capital without immediately determining a valuation.

A convertible note is a type of debt that can convert into equity (shares) in the future,
typically during a subsequent financing round. It allows early-stage investors to fund a
company without determining its valuation immediately. The note usually includes a
discount rate and a valuation cap, providing investors with better terms when converting
into equity.

Commercial applicability:

 Startup financing: Common in seed rounds (initial investment for a start up

Company) to simplify investment and avoid valuation disputes.
 Flexibility: Delays valuation discussions until a later financing round.
 Investor benefits: Offers early investors protection and potential for equity at
favorable terms.
 Risks: Can lead to dilution for founders and repayment obligations if not converted.

Simple Agreements for Equity (SAFEs)

SAFEs are financial contracts used by start-up companies to raise early-stage capital. They
provide investors with the right to receive equity in the company at a future date or upon the
occurrence of a specific event, such as an equity financing round, acquisition, or IPO. Unlike
traditional loans or convertible notes, SAFEs do not have a repayment obligation or maturity
date, and they do not accrue interest.

Key Features of SAFEs:

 Investment Amount: The amount invested gives the investor the right to future
equity at a set price or formula.
 Valuation Cap: This sets the maximum valuation at which the investment will
convert into equity, ensuring that investors benefit from a favorable share price.
 Conversion Discount: A discount on the share price at the time of conversion, giving
early investors a price advantage.
 Most-Favored Nations (MFN) Provision: Ensures all investors receive the best
terms if future investors are offered more favorable conditions.
 Rights and Participation: Typically, SAFEs do not include voting rights or board
participation, making them simpler and more flexible compared to other instruments.

Commercial Applicability of SAFEs:

SAFEs are popular in seed-stage financing (initial round of financing of investment for a
start up) due to their simplicity and flexibility.

They allow start-ups to secure funding quickly without the complexities of debt instruments
or extensive negotiation over valuation. This is beneficial for companies seeking rapid capital
injection to accelerate growth and development without the immediate burden of repayment
or accruing interest.

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Investors are attracted to SAFEs as they offer a potentially high return by converting into
equity at a favorable valuation if the start-up succeeds. They also simplify the investment
process by bypassing the formalities associated with convertible debt or direct equity sales.
However, investors do not have rights such as voting or dividend participation until
conversion, making SAFEs more suitable for investors willing to take on higher risk with the
potential for high future rewards.

ISSUE 2. What form of funding can a company that has stabilised, cash flow positive but
still has senior debt, and wishes to expand further can undertake?

Sect 48 of the Company Act Cap 106 provides that a company may make a contract, by
execution under its common seal or on behalf of the company, by any person acting under its
authority, express or implied.

In Vintage Mazzanine Fund 11 Partnership v Uganda Registration Services Bureau.

Simba Properties Investment Company Ltd Misc Cause No.205 of 2021.

Where Simba Properties Investment Co. Ltd borrowed and received Us $ 10,000,000
Pursuant to mezzanine facility agreement and the directors offered their shares as security in
other two Companies. The court held that a foreign partnership that does not use the
surnames must be registered with the Business Names Registry at Uganda Services Bureau to
be able to do business in its name

If a company has stabilized, is cash flow positive, but still has senior debt and wishes to
expand further, several forms of private external corporate finance can be considered. Below
is an overview of how venture capital, private equity, and mezzanine finance could be
leveraged:

1. Venture Capital (VC)

Suitability:
Venture capital is generally better suited for early-stage or high-growth companies that need
funding to expand innovative projects. However, for a company that is already cash flow
positive and beyond the start-up phase, traditional venture capital may be less relevant unless
the company is entering a new high-risk, high-reward venture.

While VC might not be the first choice for a mature company with steady cash flow, it could
be considered if the expansion involves a new, innovative product line or a significant pivot
that aligns with venture capital interests.

2. Private Equity (PE)

Suitability:
Private equity is suitable for more mature companies looking for substantial capital for
expansion, acquisitions, or restructuring. PE firms can provide significant funding,
operational expertise, and strategic support to help a company scale and improve profitability.

Consideration:
Private equity is ideal if the company wants to leverage its stabilized position for a large-
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scale expansion that requires both capital and strategic guidance. The company must be
prepared to share decision-making power with the PE firm.

3. Mezzanine Finance

Suitability:
Mezzanine finance is an appropriate option for a cash flow positive company that still has
senior debt and seeks expansion capital. It is often used when the company has outgrown VC
needs but does not want to dilute equity further by turning to PE or issuing new equity.

Consideration:
Mezzanine finance is suitable when the company wants to expand without significant equity
dilution and needs more funds than senior debt can provide. It works best when the company
has stable cash flow and can service higher-interest debt.

Conclusion

 Mezzanine Finance is optimal for expansion projects that require a flexible but debt-
based solution, especially for cash flow positive companies.
 From the state of facts since the Company still has debt then this is the most a
ppropriate.
 Private Equity is most appropriate for large-scale expansions that align with
strategic operational growth and when significant capital is needed.

ISSUE 3. What are the possible exit strategies that are available for the shareholders that
can bring new financing to the business and keep it running as a going concern.?

Sect 194 of the Companies Act provide for duties of the directors which include

 (a) To act in a manner that promotes the success of the business of the Company
 (b) To exercise a degree of skill and care as a reasonable person would do looking
after their own business.
 (c) To act in good faith in the interests of the Company as a whole.

In Mathew Rukikaire v. Incafex Ltd (S.C.C.A No. 3 of 2015). The court found that
exclusion from meetings and major decisions constituted oppression under the Companies
Act. It held that governance principles require fair treatment of shareholders, particularly
when they are directors, and directed that corporate processes adhere to transparency and
inclusiveness

If the shareholders are looking to exit the business but want it to continue operating as a
going concern, several exit strategies can be considered. These strategies can bring in new
financing while maintaining the company's stability and operations:

The following are the possible exit strategies.

1. Sale to Private Equity (PE) Firms

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Selling the business to a private equity firm is a common exit strategy that can inject
significant capital into the business and provide operational expertise to keep it running.

This option is suitable if the shareholders want to fully or partially cash out while ensuring
the company has financial and strategic support for future growth.

2. Management Buyout (MBO)

An MBO involves the existing management team buying the business from the current
shareholders, often with the help of external financing.

Consideration:
An MBO is ideal when the current management team is capable and willing to take
ownership and secure the necessary financing to keep the business running.

3. Sale to a Strategic Buyer

Selling to a strategic buyer—another company in the same industry or a related field—can be

a way to bring in new ownership that has a vested interest in maintaining and growing the
business.

This strategy works best if there are potential buyers who see value in the company's
operations and are willing to maintain and invest in it.

4. Sale to an Employee Stock Ownership Plan (ESOP)

Description:
An ESOP allows employees to buy ownership of the company, creating an ownership culture
while providing shareholders with an exit option.

An ESOP is ideal for companies that value employee ownership and want to ensure
continuity while providing an exit path for shareholders.

5. Initial Public Offering (IPO)

This is a mode of raising Capital that happens when a public Company first issue shares to
the general public for the first time becoming a publicly traded Company.

An IPO involves listing the company on a public stock exchange, allowing the shareholders
to sell part or all of their stakes to public investors. A private Company must first be
converted to a public Company as provided for in Section 22 of the Companies Act Cap
106.

Process of Listing Shares on the Uganda Securities Exchange (USE)

Definition:
Listing is the process through which a company’s shares are admitted to a stock exchange,
enabling it to raise capital by offering shares to the public. Shareholders become part-owners
of the company.

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Legal Framework:

 Capital Markets Authority Act, Cap 64: Governs the listing of securities in
Uganda.
 USE Listing Rules, 2021: Outlines methods for applicants without previously listed
equity.

Steps for Listing:

1. Convert from Private to Public Company. Sect 22 of the Company Act Cap 106.
o Sect 22(1) of Cap 106 a provides that Private companies must pass a special
resolution to become public.
o Sect 22(3) of Cap 106 alter the Company memorandum to the effect that the
Company is to be Public.
2. Application to Capital Markets Authority (CMA)
o Submit an application and prospectus to CMA, per the Capital Markets
Authority Act.
o CMA reviews the documents and may request clarifications.
o CMA approves and registers the prospectus if satisfied.
3. Application to Uganda Securities Exchange (USE)
o After CMA approval, the issuer applies to USE for listing, attaching the
approved prospectus.
o USE reviews and provides feedback within 15 business days.
o The issuer must respond within 5 business days to any issues raised.
4. Approval and Admission
o If USE is satisfied, a letter of admission is issued.
o The company launches an Initial Public Offering (IPO), typically lasting 2
weeks to a month.
o Upon closure, shares are allocated, and trading begins.
5. Post-Listing Obligations
o The company must comply with ongoing disclosure and reporting
requirements to CMA and USE.

Benefits:

 Raises capital for long-term growth without increasing debt.

Task 3
1.What is a checklist for the Directors on the prospectus required to take the company
public.
2.What is the process for Swift & Match Pharmaceuticals Limited on how it can issue shares
to existing shareholders without requiring the shareholders to pay for the additional shares.
3.What is the process of security perfection requirements regarding share pledges in
Uganda.

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LAW APPLICABLE.
1.The Companies Act Cap 106 including Table A.
2.The Contracts Act, Cap 284
3.The Stamp Duty Act Cap 339
4.The Income Tax Act, Cap 338
5.The Companies (General) Regulations SI No. 7 of 2016
6.The Capital Markets Authority Act Cap 64
7.The Capital Markets Authority (Licensing) (Amendment) Regulations, 2016
8.The Capital Markets (Conduct of Business) Regulations, 1996

RESOLUTION.

ISSUE 1. What is a checklist for the Directors on the prospectus required to take the
company public.?
Sect 1 of the Companies Act Cap 106 define a prospectus as a notice, circular,
advertisement or other invitation, offering to the Public Securities for subscription or
purchase.

Under the Capital Markets Authority (Prospectus Requirements) Regulations SI 84 -3

Reg 5(1) provides that the prescribed authority may require the applicant to furnish such
further documents and information as the prescribed authority may direct.

Below is a checklist for the directors on the requirements of the principal document,
commonly known as a Prospectus, which they will need to prepare for taking the company
public:

Checklist for the Principal Document (Prospectus) for IPO

1. General Information.

Regulation 4 of the Capital Markets Authority (Prospectus Requirements)

 Company Name and Logo: Ensure that the official name and logo of the company
are clearly displayed.
 Registered Office Address: Include the company’s registered office and contact
details.

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  Company Registration Number: State the company’s registration and incorporation
details.
 Summary of Key Information: Provide an overview of the company, its business
operations, and the purpose of the public offering.
 Directors and Officers: List the names, qualifications, and roles of all directors and
key officers.
 Company History: Provide a brief history and milestones of the company.

2. Offer Details

 Type and Number of Shares Offered: Specify the type (e.g., common or preferred
shares) and the number of shares being offered.
 Pricing Details: Include the price per share or the price range, if applicable.
 Use of Proceeds: Clearly outline how the funds raised will be used (e.g., expansion,
debt repayment, working capital).
 Offering Timetable: Include key dates such as the opening and closing dates of the
offer.

3. Business Overview

 Description of Business Operations: Provide detailed information about the

company’s core business, products, or services.
 Market Analysis: Include information on the market size, growth potential, and
competitive landscape.
 Strategic Positioning: Highlight the company’s position in the market and any
competitive advantages.
 Business Model: Explain how the company generates revenue and profits.

4. Risk Factors

 General Risks: Include broad industry and market risks.

 Company-Specific Risks: Outline risks unique to the company, such as reliance on
key suppliers or regulatory challenges.
 Financial Risks: Detail any financial risks, including currency fluctuations, credit
risks, and debt levels.

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5. Financial Information

 Audited Financial Statements: Provide the past three years of audited financials,
including:
o Balance sheets
o Income statements
o Cash flow statements
 Summary of Financial Data: Present a table summarizing key financial figures.
 Management’s Discussion and Analysis (MD&A): A detailed discussion of the
company’s financial performance and future outlook.

6. Governance and Management

 Board Composition: Details on the structure of the board of directors and

committees.
 Management Profiles: Brief biographies of key management, including experience
and qualifications.
 Remuneration Policies: Information on the compensation of directors and senior
management.
 Corporate Governance Practices: Outline compliance with governance codes and
standards.

7. Legal and Regulatory Disclosures

 Material Contracts: Summary of significant contracts that may affect the company.
 Litigation and Contingencies: Details of any ongoing or potential legal disputes.
 Regulatory Compliance: Confirmation of adherence to relevant industry regulations
and licenses.

8. Shareholding Structure

 Pre-IPO Shareholding: Details of existing shareholders and their stakes.

 Post-IPO Shareholding: Projection of ownership post-offering.
 Lock-up Periods: Disclose any lock-up agreements that prevent major shareholders
from selling shares within a specific period after the IPO.

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9. Terms and Conditions of the Offering

 Subscription Procedures: Details on how to subscribe to the shares.

 Payment Terms: How and when payments are to be made by investors.
 Allocation Policy: How shares will be allocated in case of oversubscription.

Supporting Documents to Include

 Legal Opinions: A statement from legal advisors regarding the legal compliance of
the offering.
 Auditor’s Report: An independent auditor’s report attesting to the financial
accuracy.
 Expert Reports: If applicable, any technical or expert reports relevant to the
company’s operations.

Compliance and Filing

 Regulatory Filing Requirements: Ensure that the prospectus complies with the stock
exchange and securities regulatory authority (e.g., the Uganda Securities Exchange
and relevant regulatory body).
 Approval and Signatures: Include required approvals and signatures from the board
of directors and key officers.

In ALTX East Africa Ltd v Capital Markets Authority (Miscellaneous Cause No. 426 of
2019). ALTX East Africa Ltd, challenged the Capital Markets Authority (CMA) in Uganda
over the regulation of their platform. They claimed the CMA had unfairly denied or delayed
approvals necessary for their operations. They alleged that CMA imposed additional approval
requirements/directives for the operation of a security exchange outside the scope and
administration of the Capital Markets Act as amended. That the respondent was in breach of
laws of natural Justice and denied the respondent an opportunity to be heard. The court issued
an order of certiorari quashing the decision of the respondent.

KCC Football Club Ltd v Capital Markets Authority (HCT-00-CC-CS 367 of 2007)
[2009] UGCommC 32

KCC Football Club sought to issue shares to the public without prior approval from the
CMA. The CMA intervened, halting the sale, stating that the club had not submitted the
required prospectus or obtained approval. They alleged that the CMA over stepped its
jurisdiction when it stepped it stopped the plaintiff from offering shares to its members.

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The court sided with the CMA, affirming its mandate to protect investors and ensure proper
disclosures before public share offerings. It was held that the issuance of shares without
CMA approval violated regulatory requirements, exposing investors to unnecessary risks and
this was a private Company which cannot offer shares to the Public.

Conclusion

Ensure that the prospectus is comprehensive, accurate, and complies with all relevant laws
and regulations to facilitate a smooth and successful IPO process.

ISSUE 2. What is the process for Swift & Match Pharmaceuticals Limited on how it can
issue shares to existing shareholders without requiring the shareholders to pay for the
additional shares.?

Swift & Match Pharmaceuticals can issue additional shares to existing shareholders without
requiring payment through a process known as issuing bonus shares. Bonus shares are
additional shares distributed to current shareholders in proportion to their existing holdings,
capitalizing the company's reserves or profits into equity.

1.Dhillan Holdings Ltd v Metropolitan Securities Ltd [1963] 1 WLR 916

Facts:

 A dispute arose regarding the issuance of bonus shares by Metropolitan Securities

Ltd.
 The issue concerned whether the company could capitalize its reserves and distribute
additional shares to existing shareholders.
 The challenge was whether the process followed by the company complied with
corporate laws and whether the shareholders' rights were affected.

Holding:

 The court held that a company may issue bonus shares if its Articles of Association
and governing corporate laws allow it.
 It emphasized that bonus shares are issued by capitalizing retained earnings or
reserves, rather than requiring payment from shareholders.
 The judgment reinforced the principle that such an issue does not involve new capital
being introduced but rather reallocates existing financial resources of the company.

2. Re National Bank of Wales (1899) 2 Ch 629

Facts:

 The National Bank of Wales had substantial undistributed profits in its reserves.
 The company decided to distribute bonus shares to existing shareholders instead of
paying cash dividends.
 The issue was whether the company had the legal authority to capitalize profits in this
manner and if it needed shareholder approval.
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Holding:

 The court held that a company can capitalize its profits and issue bonus shares,
provided that it follows proper corporate procedures.
 It confirmed that a company may use retained earnings or reserves to issue bonus
shares rather than distributing cash dividends.
 This case reinforced that a bonus issue does not involve new capital but rather an
internal reallocation of funds to increase shareholding without diluting ownership.

Procedure for Issuing Bonus Shares:

1. Board Resolution:
o The Board of Directors should convene a meeting to propose the issuance of
bonus shares.
o A resolution must be passed detailing the number of shares to be issued and
the proportion relative to existing shares.
2. Shareholder Approval:
o issuing bonus shares requires the approval of shareholders.
o A general meeting should be called where shareholders vote on the proposed
issuance.
o A special resolution must be passed, which typically requires a three-fourths
majority of those present and voting.
3. Regulatory Compliance:
o File the special resolution and any amended Articles with the Uganda
Registration Services Bureau (URSB) within the prescribed time frame.
o Update the company's share register to reflect the new shareholding structure.
4. Issuance of Share Certificates:
o Prepare and distribute new share certificates to the shareholders for the bonus
shares allotted to them.

ISSUE 3. What is the process of security perfection requirements regarding share pledges
in Uganda.?

Perfection refers to the process of registration of securities in Uganda.

1. Definition and Registration of Charges:

 Charge Defined: Under Sect 1 of the Companies Act Cap 106, a charge is a
security for the payment of debt or the performance of an obligation. It grants the
creditor rights over certain property proceeds for debt payment, including pledges and
mortgages.
 Process of Registration:

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  Section 101of the Companies Act Cap 101 mandates that any charge created by a
company must be registered with the Uganda Registration Services Bureau (URSB)
within 42 days of its creation.
 Failure to register the charge renders it void against a liquidator or other creditors.
 Sect 101(2) of Cap 106. When a charge becomes void under this section the money
secured.
 Sect 101(12) of Cap 106. Provides that a charge shall be taken to be created, in the
case of an instrument creating a charge on the date of the execution of the charge by
or on behalf of the Company.
 Sect 102 (1) of Cap 106.It shall be the duty of a company to send to the Registrar for
Registration, the particulars of every charge created by the Company.
 Sect 104(1) of Cap 106 provides that the Registrar shall issue a certificate signed by
him or her of the registration of the charge registered under this part.
 Sect 104(2) of Cap 106 provides that the certificate shall be conclusive evidence that
the requirements of this part have been complied to.
 Sect 105(1) of Cap 106 provides that the company shall cause a copy of every
certificate of registration to be endorsed on every debenture or certificate of debenture
stock.

Consequences of Not Perfecting Securities:

 Fines: Section 102(3) of the Companies Act, failing to register a charge within 42
days results in a fine of 50 currency points for the company and responsible officers.
 Equitable Interest Only: An unperfected security provides only equitable rights,
which may necessitate court action for enforcement. This limits the creditor’s ability
to secure direct enforcement and can result in a right of redemption for the debtor.
 Priority Issues: In Semakula v. Stanbic Bank (2009), failure to perfect a mortgage
led to only equitable interests being recognized.

Task 4
1.What are the respective role players in a public listing transaction.
2.What is the processes required by the Company to become a public Company.
3.What are the tax implications of the anticipated transaction between Swift & Match
Pharmaceuticals Limited and the Fund.
4.What advise can I give to the senior Partners at your law firm who are considering
purchase of shares from Swift & Match Pharmaceuticals Limited as soon as they are
available to the public?
LAW APPLICABLE.
The Companies Act Cap 106 including Table A.
2.The Contracts Act, Cap 284
3.The Stamp Duty Act Cap 339
4.The Income Tax Act, Cap 338
5.The Companies (General) Regulations SI No. 7 of 2016
6.The Capital Markets Authority Act Cap 64
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7.The Capital Markets Authority (Licensing) (Amendment) Regulations, 2016
8.The Capital Markets (Conduct of Business) Regulations, 1996

RESOLUTION.

ISSUE 1. What are the respective role players in a public listing transaction.

In a public listing transaction under Ugandan law, several key role players are involved, each
with distinct responsibilities that ensure the process is compliant, effective, and beneficial to
the company, investors, and regulatory bodies. Below is a discussion of the respective role
players and their roles:

1. Shareholders

In Mathew Rukikaire v Incafex S.C.C.A No. 3 of 2015 a share holder was defined as a
person who has been allocated shares after incorporation.

 Sect 144 of the Companies Act. Shareholders play a critical role in approving the
decision to take the company public. This is done during a general meeting where
shareholders vote on the proposal to list the company's shares on the stock exchange.
 Rights and Benefits: Existing shareholders may benefit from an increase in the value
of their shares and the liquidity provided by public trading. They also have the right to
participate in the decision-making process and may receive dividends after the public
listing.
 Dilution Considerations: Shareholders should be aware of potential dilution of their
ownership as new shares are issued to the public.

2. Board of Directors

 Sect 194 of the Companies Act Cap 106. Directors make decision in the interest
of the Company. The board is responsible for the initial decision to pursue a
public listing, weighing the benefits and risks. The board must act in the best
interest of the company and its shareholders.
 Oversight of the Listing Process: The board oversees the process of preparing
for the IPO, ensuring that all legal, regulatory, and financial preparations are met.
This includes engaging advisors and approving the prospectus.
 Corporate Governance Compliance: The board must ensure that the company
adheres to corporate governance standards required by both the Companies Act
and listing regulations.
 Liaison with Regulators and Advisors: The board coordinates with financial
advisors, underwriters, and legal counsel to ensure compliance with regulatory
requirements and efficient handling of the listing process.

3. Uganda Capital Markets Authority.

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  Sect 2 of the Company Act Cap 106 defines Capital Markets Authority to mean the
Capital Markets Authority established by the Capital Markets Authority Act.
 Sect 4(2) of the Capital Markets Authority Act, Cap 64. Establishes the Authority
as a body corporate with capacity to sue and be sued.
 Sect 6 of the Capital Markets provides that the object of the Authority is to promote
confidence in Capital markets, protect investors and reduce systemic risk.
 Sect 7(1)a of Cap 64 provides that the functions of the Authority are to approve
prospectuses and other offering documents under which securities are offered to the
Public and to approve information memorandum.
 Sect 7(1)b of Cap 64 to develop all aspects of the Capital markets with particular
emphasis on the removal of impediments to, and the creation of incentives for, long-
term investments in productive enterprise.
 Under Sect 8 of Cap 64 the Authority shall be independent.
 Capital Markets Authority (CMA): Sect 7 of Capital Markets Act. The CMA is
the primary regulatory body overseeing public offerings in Uganda.
o Approval of Prospectus: The CMA reviews and approves the prospectus to
ensure it meets the legal and disclosure requirements, providing investors with
comprehensive information.
o Regulatory Compliance: The CMA ensures that the company complies with
the Capital Markets Authority Act and regulations governing public listings.
o Ongoing Oversight: After the listing, the CMA continues to monitor the
company’s compliance with financial reporting, disclosure obligations, and
other regulations.

4. Uganda Securities Exchange (USE)

 Listing Requirements: The USE sets out the conditions a company must meet to be
listed, such as minimum share capital, financial performance, and corporate
governance standards.
 Market Surveillance: The USE ensures fair trading practices, transparency, and the
protection of investors.
 Approval of Listing Application: The USE reviews and approves the listing
application submitted by the company.
 Listing Rules Compliance: The company must adhere to the rules and regulations
established by the USE, including continuous disclosure requirements and compliance
with trading rules.

5. Auditors

 Sect 22(4) c of The Companies Act Cap 106 on application to turn the Company
from private to Public, a copy of unqualified report by the Company’s Auditors is
required.
 Sect 150(1) of the Companies Act Cap 106 every Company shall keep books of
Accounts.
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 
 Verification of Financials: Independent auditors review and verify the company’s
financial statements to provide assurance that they are accurate and comply with
accounting standards.
 Audit Reports: The audit report is included in the prospectus, giving potential
investors confidence in the financial health of the company.

In KCC Football Club Ltd v Capital Markets Authority (HCT-00-CC-CS 367 of 2007)
[2009] UGCommC 32
KCC Football Club sought to issue shares to the public without prior approval from the
CMA. The CMA intervened, halting the sale, stating that the club had not submitted the
required prospectus or obtained approval. They alleged that the CMA over stepped its
jurisdiction when it stepped it stopped the plaintiff from offering shares to its members.
The court sided with the CMA, affirming its mandate to protect investors and ensure proper
disclosures before public share offerings. It was held that the issuance of shares without
CMA approval violated regulatory requirements, exposing investors to unnecessary risks and
this was a private Company which cannot offer shares to the Public.

ISSUE 2. What is the processes required by the Company to become a public Company.

Sect 22 of Uganda Companies Act, Cap 106, the process of re-registering a private company
as a public company.

This section outlines the specific requirements and steps necessary for such a transition.

Key Steps for Re-Registration:

Sect 22(1) provides for a Special Resolution:

The company must pass a special resolution to re-register as a public company. This
resolution should also include any necessary alterations to the company's memorandum and
articles of association to reflect its new status.

Sect 22 (4) provides that Application shall be in a prescribed form.

An application for re-registration must be delivered to the registrar, accompanied by:

o The special resolution.

o A printed copy of the altered memorandum and articles of association.
o A written statement from the company's auditors confirming that the
company's net assets are not less than the aggregate of it called-up share
capital and undistributable reserves.
o A copy of the company's balance sheet, along with an unqualified report from
the auditors.
o A statutory declaration by a director or secretary of the company
confirming compliance with the Act's requirements.
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Registrar's Approval:

Upon satisfactory review of the submitted documents, the registrar will issue a certificate of
incorporation stating that the company is now a public company. This certificate serves as
conclusive evidence of the company's new status.

Additional Considerations:

 Share Capital Requirements: Ensure that the company's share capital meets the
minimum requirements for a public company as stipulated by the Act.
 Public Company Obligations: Upon re-registration, the company must adhere to all
regulatory and compliance obligations applicable to public companies in Uganda.

ISSUE 3. What are the tax implications of the anticipated transaction between Swift &
Match Pharmaceuticals Limited and the Fund.

engages in a financing transaction with the Fund, several tax implications arise under
Ugandan law. These implications depend on the nature of the financing—whether it's equity
investment, debt financing, or a hybrid instrument. Below is an analysis of the potential tax
considerations:

1. Equity Investment

 Capital Gains Tax:

Sect 7 of the Income Tax Act Cap 338, Companies pay Income tax. If the Fund
acquires shares in Ltd and later disposes of them at a profit, the gain may be subject
to capital gains tax. Uganda's Income Tax Act imposes tax on gains from the
disposal of business assets, including shares.

 Dividend Taxation:

Dividends distributed by Ltd to the Fund are subject to withholding tax. The standard
withholding tax rate on dividends paid to residents is 15%. However, if the Fund is a
non-resident, the applicable rate may vary depending on any existing double taxation
agreements (DTAs) between Uganda and the Fund's country of residence.

2. Debt Financing

 Interest Withholding Tax:

 Sect 139 of the Income TaxAct Cap 338 provides for payment of withholding tax.
The standard rate is 15% for residents and 20% for non-residents. This tax is deducted
at the source by the Company when making interest payments to the Fund.

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ISSUE 4. What advise can I give to the senior Partners at your law firm who are
considering purchase of shares from Swift & Match Pharmaceuticals Limited as soon as
they are available to the public?

Legal Opinion on the Salient Aspects to Consider Before Investing in Swift & Match
Pharmaceuticals Ltd

From. E3 and Co. Advocates.

P.O. Box, ...........

To: Senior Partners

Date 19th March 2025.

Subject: Key Considerations for Investing in Publicly Listed Shares of Swift & Match
Pharmaceuticals Ltd

1. Due Diligence and Financial Health

Before purchasing shares, it is essential to review Swift & Match Pharmaceuticals Ltd’s
financial health by examining its financial statements, which should be included in the
prospectus.

Sect 150 of Cap 106 provides that every Company shall keep books of Accounts.

Key aspects include:

 Profitability and Revenue Growth: Analyze the company's historical revenue trends
and profit margins.
 Debt Levels: Check the company’s debt-to-equity ratio and any outstanding
liabilities, ensuring the company’s debt does not indicate potential solvency issues.
 Cash Flow: Review cash flow statements for positive operating cash flows, as this is
a sign of a healthy business.

2. Risk Factors

The prospectus will outline specific risk factors associated with the company, which may
include:

Sect 1 of the Companies Act Cap 106 define a prospectus as a notice, circular,
advertisement or other invitation, offering to the Public Securities for subscription or
purchase.

Under the Capital Markets Authority (Prospectus Requirements) Regulations SI 84 -3

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Reg 5(1) provides that the prescribed authority may require the applicant to furnish such
further documents and information as the prescribed authority may direct.

 Industry Risks: Pharmaceutical industry regulations, competition, and market

demand changes.
 Operational Risks: Dependence on key suppliers, potential disruptions in the supply
chain, and technological obsolescence.
 Legal and Compliance Risks: Ensure there are no pending or significant lawsuits
that could impact the company's profitability or reputation.

3. Regulatory Compliance.

Verify that Swift & Match Pharmaceuticals Ltd’s is in full compliance with regulatory
requirements set by the Capital Markets Authority (CMA) and Uganda Securities
Exchange (USE). Confirm the company adheres to the Companies Act Cap 106, including
corporate governance standards.

Sect 50 of Capital Markets Act Cap 64 provides for general requirements of approval and
licences.

In KCC Football Club Ltd v Capital Markets Authority (HCT-00-CC-CS 367 of 2007)
[2009] UGCommC 32

KCC Football Club sought to issue shares to the public without prior approval from the
CMA. The CMA intervened, halting the sale, stating that the club had not submitted the
required prospectus or obtained approval. They alleged that the CMA over stepped its
jurisdiction when it stepped it stopped the plaintiff from offering shares to its members.

The court sided with the CMA, affirming its mandate to protect investors and ensure proper
disclosures before public share offerings. It was held that the issuance of shares without
CMA approval violated regulatory requirements, exposing investors to unnecessary risks and
this was a private Company which cannot offer shares to the Public.

4.Governance and Leadership

Sect 194 of the Companies Act provide for duties which include

 (a) To act in a manner that promotes the success of the business of the Company
 (b) To exercise a degree of skill and care as a reasonable person would do looking
after their own business.
 (c) To act in good faith in the interests of the Company as a whole.

In Charles Harry Twagira v DFCU Bank LTD Civil suit No. 188 /2018. The court held
that Directors and managers represent the directing mind and will of the Company and
therefore the state of mind of directors is regarded as the state of mind of the Company.

Strong corporate governance and leadership are vital for sustained growth and stability:

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  Board Composition: Ensure that the board is composed of experienced professionals
with a strong track record.
 Management Team: Verify the expertise and reputation of the company’s executives
and their ability to execute strategic objectives.

5. Tax Implications Review the tax implications of investing in shares:

 Sect 7 of the Income Tax Act Cap 338, Companies pay Income tax.
 Capital Gains Tax: Understand the tax rate applicable to any future profits from the
sale of shares.
 Dividend Withholding Tax: Confirm the tax obligations on any dividends received,
currently at 15% for residents in Uganda.

6.Rights of Shareholders.

In Mathew Rukikaire v. Incafex Ltd (S.C.C.A No. 3 of 2015). The court found that
exclusion from meetings and major decisions constituted oppression under the Companies
Act. It held that governance principles require fair treatment of shareholders, particularly
when they are directors, and directed that corporate processes adhere to transparency and
inclusiveness

Conclusion

Therefore considering financial stability, growth prospects, risk factors, and market
conditions, I strongly recommend buying the shares.

Prepared by:
........................
Lawyer.

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