How the law can impact your business operations

Above: Traders going about their daily duties in Kikuubo Shopping Lane. File Photo

What you need to know:

Starting a business without legal knowledge is challenging because it pushes the initial and operational costs higher than the enterprise would have cost because the proprietor falls in so many traps yet hiring a lawyer is expensive. Eronie Kamukama looks at a few laws that impact the day to day business operations.

By most standards, Mr Joel Aita is a successful businessman, currently employing about 100 people.
He has made his fortune by designing house plans, estimating specifications of building materials and supervising construction projects on behalf of his clients.
Like a number of businesspeople in Uganda, when he started his consultancy business in 2007, he lacked legal knowledge.

“Without legal knowledge, you find that you sign the wrong contracts or contracts are wrongly written. You would find that you get a draft contract with terms of payment that are not clear to you yet if you have a lawyer, they can always help you make the right decision,” he explains.
Mr Aita acknowledges that starting out without legal knowledge is challenging because it pushes the costs higher since hiring a lawyer is expensive.
“I had to have a lawyer who definitely advised me for instance on registration but it comes with costs and lawyers are expensive. I had to do some short contract law courses,” he says.
According to city lawyer Fred Muwema, businesspeople have to regard the law as important.
“To everything, there is a legal connection involved. Anything anyone does including business has got laws and regulations, without which it becomes hard to carry out business,” Mr Muwema says.
Senior partner at Kampala Associated Advocates Joseph Matsiko agrees with Mr Muwema. He explains that the law governing trade and business is geared towards ensuring not only orderliness in the marketplace but also to promotion of growth in business.

What you should know
There are a variety of laws that someone engaged in business or one planning to set up an enterprise should bear in mind in order to make use of some of the opportunities they present and avoid the penalties they pose once they are broken.

First, is the law concerning business organisation especially in regards to the Companies Act 2012 that stipulates the incorporation, regulation and administration of companies.
Mr Matsiko says this includes formation of companies be it partnerships, sole proprietorship or even registration of businesses.
He says the beginning point is to understand what kind of business you want to do and the best method of doing it.

“If you want to have a sole proprietorship as a business, you should know that you will not enjoy the benefits of limited liability to the extent that if the business makes losses, they can be attributed to you personally as opposed to if you formed a company with someone else,” he explains.
Mr Muwema says business owners have to understand the purpose of registration of an enterprise as per the law because it helps to create a separate entity from the individual.
“Such an entity is able to enter into contracts, own property so operating under an individual is not attractive. For instance trading as an individual, you may not easily access finance,” he notes.
Knowing the kind of business you want to start is not enough. Once you have registered the business, Mr Muwema says, you need to find out if your enterprise requires a trading licence as enshrined in the law since some businesses don’t need a trade licence. People running businesses of professional services such as law firms pay fees to a professional body as opposed to paying for a licence from Kampala Capital City Authority.

In addition, businesspeople also need to be conversant with the law of contract.

“You may enter into a sales contract for supply of goods. You need to be particular about the kind of goods because you may supply and they are rejected. You need to be clear on the price. What happens when you have signed the contract and the dollar rate changes?” Mr Muwema wonders.
Important too is the law governing individual employment relationships, particularly under a contract of service. One has to keep up to date with the Employment Act 2006 as they hire or build a business team.

“The basics is for the businessman to understand the rights of employees and obligations for instance they have to be paid their due wages, there is a right of an employee not to be dismissed without just cause, to form a trade union and have their social contribution made in accordance with the NSSF Act,” Mr Matsiko explains.

Another significant law is about taxation. Mr Peter Muliisa, a lawyer says tax laws in Uganda are good for business but one needs to understand them to take advantage of them.
He cites the Income Tax Act, Value Added Tax Act, Stamps Duty Act, Excise duty Act and the East African Community Customs Management Act as some of the key tax laws.
Mr Muliisa says these laws govern different tax heads and every businessperson needs to know what they stand for and which ones apply to their business.
For example there are local taxes payable for sell of local goods and if you are going to import goods from another jurisdiction, you have got to be familiar with the taxes you have to pay for import or freight.

In cases of ignorance about tax laws, Mr Muliisa says, businesspeople can lose their business through enforcement actions by Uganda Revenue Authority or be imprisoned when they commit tax crimes in the process of transaction business.
Experts do not expect ordinary businesspeople to understand everything about commercial laws because the laws are complex. They also do not expect them to go to Law School. However, they say businesspeople have to ensure they consult people who have legal knowledge, not necessarily lawyers.

Seek knowledge
Mr Matsiko says businesspeople should make use of agencies that facilitate them to get knowledge on what the law requires for instance at Uganda National Chamber of Commerce.

“For those who can, you should seek legal services to be advised. And these days because of the electronic age, much of the information is accessible on the Internet so one can read on their own,” he advises.
For businesses in the informal sector that cannot afford legal services, Mr Matsiko suggests that they seek assistance from the office of the registrar general of Uganda Registration Services Bureau as its growth of branches in the country has made it easy to regularise business.