Forms of business entities in Uganda

This article highlights the seven main forms of business entities in Uganda broadly falling under unincorporated and corporate structures.
In legal terminology, sole proprietorships and partnerships are categorised as unincorporated entities while private companies limited by shares or guarantee, public limited companies, unlimited companies, statutory corporations and branches of foreign legal entities are classified as corporate entities.

Unincorporated structures
Unincorporated structures are business entities without distinct legal standing from the owners who remain individually accountable for the debts and obligations of the enterprise.
They include sole proprietorships and partnerships.

A sole proprietorship is a one individual entity. An individual carrying on business under a business name not consisting of his/her true name must register this business name at the Uganda Registration Services Bureau (URSB).

A sole proprietorship is easy to establish and the owner exclusively enjoys the rewards of the enterprise. The owner is, however, not distinct from the business and is accountable individually for any liabilities of the enterprise taxes inclusive.

Partnerships enable like-minded individuals not exceeding 20 in number to jointly raise capital and undertake business together. They are widely used by professional service providers such as lawyers and auditors.

Partnerships are governed by a partnership deed spelling out the rights and obligations of the partners.
The registration of the partnership business name is mandatory if the name does not consist of the true surnames of all partners. Partnerships are divided into two namely general and limited liability partnerships (“LLPs”).

How LLPs differ from general partnerships is that the liability of the limited partners for any debts or obligations of the partnership does not exceed the amount of their capital contribution.

In a general partnership, every partner is an agent of the firm and binds the other partners. Therefore, all partners are also jointly and severally liable for the partnership debts.

A general partnership is also dissolved by the death or bankruptcy or retirement of one of the partners unless the partnership agreement prescribes otherwise which not the same case is for LLPs.

Corporate structures
Corporate business entities have a distinct legal standing from the owners who are generally protected from the liabilities of the enterprise. These include locally incorporated companies, statutory corporation and branches of foreign legal entities.

Local companies incorporated under the provisions of Uganda’s Companies Act, can have limited or unlimited liabilities. Private companies limited by shares are those entities whose membership by law is limited to 100 persons. Members’ liability for company obligations is limited to their shareholding.

The right to transfer shares is restricted for private companies so is the subscription for company shares and debentures by the public.

A private company limited by guarantee predominates non-profit organisations such as charities, sports clubs and professional bodies. The purest form of a guarantee company is one having the liability of its members limited by the memorandum to the amount that the members undertake to contribute to the assets of the company if it is wound up.

Public limited companies are entities which are not private limited companies. They can offer their shares to the general public but also have limited liability. The shares can be acquired during an initial public offering or through trading on the stock exchange.

Unlimited companies are private companies where the shareholders have unlimited liability.

Each member is jointly and severally liable for the debts of the company in the event of winding up. It is fairly easy to return capital to shareholders as the restrictions on the reduction of capital in the Companies Act 2012 only apply to limited companies.

Statutory corporations or public corporations are public bodies established by respective Acts of Parliament. Statutory corporations are managed by a Board of Directors appointed by the government through the line minister or the President and are accountable to the public and Parliament.

Foreign companies or branches registered in Uganda are an extension of their head office. To be registered by URSB, branches must present the constitutional documents of their head office.

Choice of business entity
The choice of entity for business is influenced by the legal, tax and commercial considerations though in some cases the law is specific on the type of structure for regulated businesses.

Unincorporated entities are often less onerous to establish but are not separate from the owners who remain individually liable for the debts and other obligations of the business.

Corporate entities are on the other hand separate legal entities distinct from their owners and are liable for own debts and obligations. They can sue or be sued in their own right. Corporate entities can also outlive their founders unlike unincorporated structures that usually cease with the owner’s demise.

The author is the managing partner at Cristal Advocates.