WORKSHOP 1.

TASK 1

BRIEF FACTS.

Josrich Trading Company Ltd has started operating business upon which it was
contracted by KCCA to upgrade various city suburb roads. Upon its incorporation, it
adopted Table A as it’s Articles of Association with the initial capital being Ug shs.500,
000,000 divided in 1000 shares of Ug Shs. 500,000 each. These shares are divided
amongst Richard Mubi, Alice Kenyab and Jojo Kembabazi in these shares 0f 300, 50 and
50 respectively. Richard Mubi and Alice Kenyab are the directors of the
company.Richard Mubi has paid Ug Shs. 150,000,000 out of the Ug shs .300, 000,000;
Alice Kenyab and Jojo Kembabazi have each paid Ug. Shs 5,000,000 out of the Ug Shs.
25,000,000.

In June 2023, the company won a tender with KCCA to upgrade the Busabala – Kazi
Road In Makindye Division worth over Ug Shs.15,000,000,000(fifteen billion Ugandan
shillings) that should commence by the end of February 2024. This has caused worry
amongst the directors about raising over Ug Shs, 8,000,000,000(Eight billion Ugandan
shillings)to start on the project.Rchard Mubi wants to borrow from Equity bank on
behalf of the company, Alice Kenyab wants to borrow from the brother and Jojo
Kembabazi wants to use her savings with the UAP Unit Trust hence the worry on how
to secure more credit from the financial institutions.

ISSUES .

1. How can Josrich Trading Company Ltd acquire money from Jojo Kembabazi?
2. How can the company raise money through a call on shares?
3. What is the process of forfeitures of shares in case Alice Kenyab does not
respond to the call?
4. How can the company raise capital from the forteited shares?
5. What are the necessary documents?

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LAW APPLICABLE.

1. The Companies Act, 2012

2. Registration of Documents Act.

RESOLUTION

ISSUE 1. HOW CAN JOSRICH TRADING COMPANY LTD ACQUIRE MONEY

FROM JOJO KEMBABAZI?

From, the facts, Jojo Kembabazi is a shareholder hence the company can acquire money
from her on a shareholder’s loan.

Share holder loans are debit finances given to a company by its shareholders and
represents debit for and in the business. Section 5 of the Companies Act, 2012 restrict
the right to transfer its shares and other securities and prohibits any invitation to the
public to subscribe for any shares or debentures of the company

These loans can be issued by;

1. Equity financing; this is where funds are provided by the company

shareholders in exchange for shares. It is usually referred as equity or
shareholder’s equity. Equity means ordinary share capital of company or
contribution made out of shareholders own or from retained profits to the
company.
It’s where the Articles enable board resolution of which an agreement is entered
with its shareholders and the very agreement is registered under the
Registration of Documents Act. In the case of Laronge Realty ltd v Golconda
Investments ltd (1986) 7 BCLR the position of the law was to the effect that,
Shareholder loans should be documented by promissory notes or by some other
form of loan agreement as and when the advances are made.

In conclusion, the company can acquire money from Jojo Kembabazi through a
shareholders loan.

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ISSUE 2. HOW CAN THE COMPANY RAISE MONEY THROUGH A CALL ON
SHARES?

Section 2 of the Companies Act defines a share as a share in the share capital of a
company and includes stalk except where a distinction between stalk and private shares
is expressed or implied. In the case of Borland’s Trustee V Steel Bros & Co Ltd
(1901)1Ch 279 a share was defined as the interest of a shareholder in the company
measured by a sum of money for the purpose of liability in the first place and of interest
in the second place but consisting of mutual covenants entered into by all the
shareholder’s interest.

Therefore, upon incorporation of a company, Directors of the company allot shares to

the members of the company who unless the Articles expressly provide are not obliged
to pay full sum of the shares.

Therefore, when the company is in need of financing, the directors will call upon the
shareholders to pay up for their unpaid shares. The duty to pay for shares only arises
where there is a call. This process is called as call on Shares.

In the case of Seremba Mark V Isanga Emmanuel Company Cause No. 24 2005, Justice
Kiryabwire confirmed the position in Mark Xavier Wamalwa and Another V Stephen
Aisu Company Cause No. 27 of 2002, that a company whose articles of association do
not make provision on how calls on shares will be made, Table A shall automatically be
adopted.

Process of making call on shares

Regulation 15(1) of TABLE A provides that directors may from time to time make calls
upon members in respect of all the monies unpaid on their shares, whether on account
of the nominal value of shares or by way of premium and not my conditions of
allotment of shares made payable at fixed times. Therefore, the directors will have to
call for a meeting in respect of making calls upon the members in respect of all or any
monies unpaid on their shares.

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The directors will during the meeting proceed and take minutes of the board meeting as
it goes on.

Upon closure of the meeting the directors should pass a resolution at the director’s
meeting making a call on all unpaid shares. This resolution is a board resolution passed
at the meeting. Regulation 16 of Table A provides that the call shall be taken to have
been made at the time when the resolution of the directors authorizing the call was
passed and may be required to be paid by installments.

And lastly the directors should then send out call notices to the shareholders with
unpaid shares. The notice shall specify the time and place of payment to the company at
the time and place specified and the amount called on his or her shares.

Important to note is Under Regulation 15(2) A call shall not exceed one fourth (25%)
of the nominal value of the share or the payable less than on month from the date
fixed in the payment of the last preceding call.

Under Regulation 15(3) Each member shall subject to receiving at least fourteen days’
notice specifying the time and place of payment pay the company at the time and place
specified the amount called for the shares.

And the case of Alexander v Automatic Telephone Co. [1900] 2 Ch. 56 provides for the
extent to which a company can make a call on shares hence court held that even though
the prospectus of a company relating to the issue of certain shares stated that it is not
intended to call up more than a specified amount per share, the company may call up
the balance

In conclusion, the company can raise money through a call on shares as stated above.

ISSUE 3. WHAT IS THE PROCESS OF FORFEITURES OF SHARES IN CASE ALICE

KENYAB DOES NOT RESPOND TO THE CALL?

Forfeiture of shares is defined in the case of Spackman V Evans (1898) Ch. D/APP
House of Lords at page 17, as the process where the company forfeits the shares of a

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member or shareholder who fails to pay the call on shares or installments of the issue
price of his shares within a certain period of time when they fall due.

In other words, when the shareholder fails to pay the full amount of share which he
agreed to pay in installments the company can cancel his shares.

Forfeiture of shares must be in accordance with the provisions contained in the

articles of the company to be treated as valid forfeiture. Section 13 (1) of the
Companies Act 2012, provides that Articles of Association may adopt all or any of the
regulations in Table A.

By virtue of its Articles of Association, Josrich Trading Company Limited adopted to be

regulated by Table A of The Companies Act with necessary modifications. Part two of
table A contains regulations for the management of a private company limited by
shares to include the regulations contained in Table A with the exception of regulations
24 and 53.

The process of forfeiting shares includes;

1. A Proper notice

A proper notice under the authority of board must be served on the defaulting
shareholder. In the case of Public Passenger Services Ltd. v. M.A. Khader [1996] “A
proper notice is a condition precedent to the forfeiture of shares and even the slightest
defect in the notice will invalidate the forfeiture”. Therefore Regulation 33 of Table A
provides for forfeiture of shares, that where a member fails to pay any call or
installments of a call on the day appointed for payment, the directors may at any time
when part of the call remains unpaid, serve a notice on him or her inquiring payment
of so much of the call or installment as is unpaid together with any interest which may
have accrued.

The notice shall name a further day not earlier than the expiration of fourteen days
from the date of service of the notice on or before which the payment required by the
notice is to be made, and shall state that if the payment is not made at or before the time
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appointed, the shares in respect of which the call was made will be liable to be forfeited
as per regulation 34.

Where the requirements of the notice referred to in regulation 34 are not complied with,
any share in respect of which the notice has been given may at any time, before the
payment required by the notice has been made, be forfeited by a resolution of the
directors to that effect as per regulation 35. And consider regulation 36.

Regulation 5 of table A in our instant facts provides that the rights conferred upon the
holders of the shares of any class issued with preferred or other rights shall not, unless
otherwise expressly provided by the terms of issue of the shares of that class, be taken
to be varied by the creation or issue of further shares ranking paripassu with those
shares. This regulation was adopted by article 5 of Jacelona trading company
Limited’s Articles of association.

The right of pre-emption is where the first option to transfer must be given to the
existing members of the company in proportion of the shares they hold.

According to the case of Mark Law and anor V Elizabeth Haider [2017] UKUT 0212
(TCC), when the shareholders of a private Company limited by shares with the express
consent agree to exercise the right of pre-emption, such rights are only limited to when
such company disposes off such shares by selling. It does not apply to where disposal of
such shares re under court decision or by court order or in any manner other than sale.

The effect of forfeiture is that a person whose shares have been forfeited shall cease to
be a member in respect of the forfeited shares, but shall, notwithstanding, remain liable
to pay to the company all monies which, at the date of forfeiture, were payable by him
or her to the company in respect of the shares, but his or her liability shall cease when
the company receives payment in full of all those monies in respect of the shares as per
regulation 37

Regulation 38 (1) provides that statutory declaration stating that the declarant is a
director or the secretary of the company, and that a share the company has been duly

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forfeited on a date stated in the statutory declaration, shall be conclusive evidence of the
facts stated as against all persons claiming to be entitled to the share.

Sub regulation 2 of the same regulation states that the company may receive the
consideration, if any, given for the share on a sale or disposition of it and may execute a
transfer of the share in favour of the person to whom the share is sold or disposed of;
and he or she shall upon be registered as the holder of the share, and shall not be bound
to see to the application of the purchase money, if any, nor shall his or her title to the
share be affected by any irregularity or invalidity in the proceedings in reference to the
forfeiture, sale or disposal of the share.

Regulation 39 of table A provides that the provisions of these Regulations as to

forfeiture shall apply in the case of non-payment of a sum which, by the terms of issue
of a share, becomes payable at a fixed time, whether on account of the nominal value of
the share or by way of premium, as if it had been payable by virtue of a call duly made
and notified.

ISSUE 4. HOW CAN THE COMPANY RAISE CAPITAL FROM THE FORTEITED
SHARES?

Regulation 36 of Table A of the Companies Act illustrates that a forfeited share maybe
sold or otherwise disposed of on terms and in a manner the directors think fit, and at
any time before a sale or disposition, the forfeiture may be cancelled on such terms as
the directors think fit.

Taylor, Philips, and Richards (1897) 1 Ch. 298 at page 306 in the case of Re-National
Bank of Wales. Court held that where shares are transferred, the transferor is still
accountable for any calls that have already been made.

Equity Financing is a contribution made out of the shareholders own fund or from a
retained profits to the company therefore under this the company reserves power to
increase the share capital hence generating more funds.

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In conclusion as a result, the corporation can obtain funds by selling or reissuing
forfeited shares to interested members at a price set by the board of directors.

ISSUE 5. WHAT ARE THE NECESSARY DOCUMENTS?

1. THE NOTICE OF THE DIRECTORS’ MEETING.

THE REPUBLIC OF UGANDA

IN THE MATTER OF THE COMPANIES ACT, 2012.

AND

IN THE MATTER OF JOSRICH TRADING COMPANY LTD

TO: THE DIRECTORS

JOSRICH TRADING COMPANY LTD

TAKE NOTICE that there shall be a board meeting of the directors of the company
which shall be held on the 04th day of December 2023 starting at 9:00 am at the
company's offices located in Kampala and the meeting shall be in the Board room.
Attached is a copy of the agenda for planned meeting

Agenda;

1. Opening prayer

2. Roll Call

3. Communication from the chair

4. Discussing calls on shareholders with unpaid shares

5. Closing prayer.

By order of the Managing Director/Chairperson.

Abcde

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Secretary

01st December 2023.

2. THE BOARD RESOLUTION.

THE REPUBLIC OF UGANDA

IN THE MATTER OF THE COMPANIES ACT No.1 of 2012.

AND

IN THE MATTER OF JOSRICH TRADING COMPANY LTD

BOARD RESOLUTION

At the Board of Directors meeting of the company held at its registered offices located
in Kampala, Uganda held in the Board Room on the 4th day of December 2023.

IT WAS UNANIMOUSLY RESOLVED AND PASSED THAT;

1. That the company made a call for payment for the unpaid shares.

2. That a call of a quarter of the nominal value of the …………….. ordinary shares
of the company issued to……., such call to be paid on or before 30 th December
2023.

3. That the notices for call be issued to that effect in any case not later than 25 th
December 2023

4. That the registrar is notified accordingly.

Dated at Kampala this 4th day of December 2023.

………………… ………………………….

Mrs. RICHARD MUBI

DIRECTOR

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……………………………………………..

MR. ALICE KENYAB

DIRECTOR

3. NOTICE FOR CALL OF UNPAID SHARES.

THE REPUBLIC OF UGANDA

IN THE MATTER OF THE COMPANIES ACT, 2012.

AND

IN THE MATTER OF JOSRICH TRADING COMPANY LTD

NOTICE OF BOARD RESOLUTION FOR CALL OF UNPAID SHARES OF

JOSRISCH TRADING COMPANY LTD

(Under Regulation 15 of TABLE A OF THE COMPANIES ACT)

NOTICE

TAKE NOTICE OF A CALL ON SHAREHOLDERS WITH UNPAID SHARES to be

paid by the 15th day of January 2024, at Head office ………………………in Kampala

TAKE Further NOTICE that you are required to pay a quarter of the nominal value of
your unpaid shares (30 shares) within thirty days from the date of the notice.

SHOULD YOU FAIL TO PAY within the above prescribed time, the company shall
proceed to forfeit and shall thus henceforth take over the shares.

By Order of Board

Dated this 4th day of December 2023

abcde

Secretary

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Shareholder Loans Agreement

THE REPUBLIC OF UGANDA

IN THE MATTER OF CONTRACTS ACT 2010

LOANS AGREEMENT

THIS LOAN AGREEMENT is made this_____ day of _______________________20____

BETWEEN
JOJO KEMBABAZI of C/o_________________________________________(Hereinafter
referred to as the “LENDER” which expression shall where the context so admits
include its nominees, assignees or successors in Title) on the one part,
AND
JOSRICH TRADING COMPANY LIMITED of
C/o___________________________( Hereinafter referred to as the “BORROWER(s)”
which expression shall where the context so admits include its nominees, assignees
or successors in Title) on the other part.
NOW THIS DEED WITNESSETH as follows
WHEREAS
a) The borrower(s) has/have approached the lender for a facility of the equivalent
of UGX. 500,000,000/= (Five Hundred Million Shillings).
b) The chargeable fees for the loan transaction shall be
UGX_________________________
c) The lender has agreed to provide the facility above subject to the terms and
conditions stipulated herein.
SECURITY
a) To secure the loan advanced in this agreement and all other obligations of the
Borrower(s) to the Lender, its nominees assignees or successors in Title however
created, whether direct or indirect, absolute or contingent, now or later existing,
the Borrower(s) gives to the Lender a security interest in the following;
1. __________________________________________________________________
________________________________________________ and all accessories,
parts or equipment now or later affixed to the same.

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 2. Personal Guarantee by
Mr./Ms./Mrs.__________________________________ of
____________________________ Tel: _______________________
b) To further secure the payment of monies owed to the Lender, the lender shall
have lien on and recourse to any property belonging to the Borrower(s) that now
or later is in possession or control of the Borrower(s). Such property shall be in
this Agreement collectively referred to as “collateral”
c) The Borrower(s) who remain in possession of the collateral in agreement with the
lender shall at all times keep the collateral free from all liens and third party
claims whatsoever, other than the security under this agreement.
d) The Borrower(s) shall not sell, transfer, lease or otherwise dispose of any of the
collateral or any interest in the collateral except with prior written consent of the
Lender.
e) The Borrower(s) shall at all times keep the collateral in good order and repair,
excepting any loss, damage or destruction arising from ordinary use.
f) The Lender may examine and inspect the collateral or any part of the same in the
Borrower(s) possession, whenever located and at any reasonable time.
g) Until default under this Agreement, the Borrower(s) may have possession of the
collateral and use the same in any lawful manner that is not inconsistent with
any of the provisions of this Agreement.
h) The Lender may perform any obligation of the Borrower (s) under this
Agreement that the Borrower(s) omits to perform and the Lender may take any
action that it deems necessary for the maintenance or preservation of the
collateral or any part of it thereof.
IT IS HEREBY FURTHER AGREED AS FOLLOWS:
1. That the Borrower(s) shall repay the loan in a period of ________
months/weeks/days from the date of disbursement of the facility, specifically on
or before the_____ day of________________2024.
2. That interests shall be charged at a monthly flat interest rate of _______% of the
Principal amount of the loan facility, hence the Borrower(s) shall be required to
pay back UGX_____________________________ per day/week/month in equal
installments of UGX_____________________________ per day/week/month
without fail, until the loan is fully paid.
3. That the initial payments made by the Borrower(s) shall first be applied to settle
any accrued interest and then to the principal balance.

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 4. That late payment on every required monthly installment shall attract a penalty
of UGX __________________ on daily basis.
5. Upon default, when exercising the lender’s right of lien over the property in its
possession, it shall be at liberty to sell the collateral given by the Borrower(s) by
way of either public auction or private treaty without recourse to a court of law
in order to recover all the monies owed to it by the Borrower(s) should
he/she/they fail to comply with the Lender’s DEMAND NOTICE, all the
remaining monies if any shall be handed over to the Borrower(s)
NOTICE:
The Borrower(s) shall retain a right to pay outstanding monies and costs to redeem the
collateral before it is disposed of.
DEFAULT:
The occurrence of any of the following events shall constitute a default under this
agreement;
a) None payment, when due, of any amount payable under this agreement
of failure of the Borrower(s) to perform any of the obligations contained in
this Agreement.
b) Any false material, misleading statement(s) or misrepresentation(s) by the
Borrower(s), in this Agreement or in any other writing at any time
furnished by the Borrower(s) to the Lender
c) Any form of Bankruptcy, insolvency/inability of the Borrower(s) to pay
d) Entry of any Judgement(s) in relation to any property under this
Agreement against the Borrower(s) or any of his/her/their partner(s)
e) Reasonable determination by the lender in its absolute discretion, that its
insecure.
6. That at any time after the monies hereby granted or any part thereof has become
due and payable to the lender and the Borrower has defaulted thereon or any
event of default has occurred or in the opinion of the lender there exists any
situation indicating that the Borrower is not likely to perform his/her/their
obligations under this Agreement or the Lender in any way it deems herself
insecure as regards the facility herein granted or for any other reason
whatsoever.
The Lender shall upon giving the Borrower(s) requisite Notice to rectify the
default, be at liberty to declare all monies payable forthwith and recall the facility
of the Borrower shall make immediate full payment thereof to the Lender. The

13
 Lender is hereby authorized to thereupon recover the monies advanced by any
lawful steps necessary for the full recovery of all monies due and owing.

7. That any notice, consent or communication permitted to be given or made under

this Agreement shall be in writing and shall be deemed to have been duly given
or made to the Borrower(s) when it shall be delivered to the last known place of
business of the Borrower(s) or sent by mail to the Borrower’s Last known
address.

8. That no delay or omission by the Lender in exercising any right hereunder shall
operate as a waiver of any such right or of any other right nor shall any delay,
omission or waiver on any occasion be deemed a bar to or waiver of the same or
any other right of any future occasion.
9. That the rights and remedies of the Lender shall be cumulative and may be
pursued singly, successively, or together, in the sole discretion of the Lender.

10. That the ineffectiveness, invalidity or unenforceability of any provision of this

Agreement shall not affect other valid provisions thereof which shall remain in
full force and effect.

11. This Agreement shall be governed by and construed in accordance with the
Laws of Uganda and any dispute arising from or in relation thereto shall be
subject to the jurisdictions of the courts of Uganda PROVIDED always and it is
hereby agreed that the submission to such jurisdictions shall not (be construed so
as to) limit the right of JOJO KEMBABAZI “the Lender herein” to take
proceedings against the Borrower(s) in Ugandan or in whatever other
jurisdictions.
IN WITNESS WHEREOF the Parties hereto have caused this Agreement to be signed,
and delivered on the day and year above written
Signed/Sealed/ or Stamped by or on behalf of the BORROWER
NAME: ____________________________________Signature:_____________________
Position/Title: ______________________________
Signed/Sealed/ or Stamped by or on behalf of the LENDER
NAME: ____________________________________Signature:_____________________
ALL IN PRESENCE OF;

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_______________________________
ADVOCATE

DRAWN& DRAFTED BY;

Firm A5 & CO. ADVOCATES
LDC Mbarara Campus

TASK 2 (a)
Legal Issues
1. Whether Josrich Trading company Ltd can successfully raise capital from its
unissued shares?
2. How can Josrich Trading company Ltd issue its shares at a premium?
3. What is the role of premium on shares if used by Josrich Trading company Ltd?
Resolution
Issue 1
A share was defined in the case of Borland’s trustee vs Steel bros Co Ltd 1990) 1 Ch
279,288 per farewell J as “the interest of a shareholder in the company measured by a
sum of money for purposes of liability in the first place and interests in the second place

15
but also consisting of a series of mutual covenants entered into by all the shareholders
interest”.

Section 2 of the company’s Act 2012 (As Amended) defines share to mean share in the
share capital of a company and includes stock except where a distinction between stock
and shares is expressed or implied.

Un issued shares are those that remain with the company as they have not been allotted
or transferred. A company, may through its un issued shares, may raise capital by;
i) Allotment of shares is the formation and distribution of new shares by a
company. New shares can be issued either to the new or current
shareholders. Offers for shares are made on application forms provided by
the company. When the application is accepted, it is called an allotment.
Section 30 of the Companies Act, restrict the issue of new shares by
requiring that; a private company is not entitled to invite the public to
subscribe to any of its securities; must in its Articles of Association contain a
clause restricting the right of transferability of its securities as far as its shares
are concerned.

ii) Issuing the shares at Premium. Under Section 66 of the Companies Act, the
company may opt to sell such unissued shares at a premium. Lowry
(inspector of taxes) v Consolidated African Selection Trust Ltd (1940) 2 ALL
ER 545 at 565 stipulated that the issue of premium shares is not subject to any
statutory or other restrictions.
Issuance of premium shares indicates that the company will issue shares at a
price that is greater than their nominal value, and the sum equal to the total
amount or value of the premium on those shares will be deposited to a "share
premium account”
iii) Issuing redeemable preference shares. Section 68(1) of the Act, a company
limited by shares may if authorized by its articles, issue preference shares
which are at the option of the company are liable to be redeemed by the
company. Under Article 3 of table A, redeemable preference shares are
issued with the sanction of an ordinary resolution of the company on such
terms as stipulated. A board resolution issuing the shares is passed pursuant
to the ordinary resolution sanctioning the issue of redeemable preference
shares.

When redeeming redeemable preference shares, the company must pay due
regard to Section 68 (2). Redeemable shares aid the company sail through
tougher economic situations with confidence that it shall restore the status
quo if it regains financial soundness and gain back the shares so allotted.

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 iv) Rights issue/script issue of its existing shares. The company invites its own
shareholders to subscribe for new shares or debentures. As an incentive, such
securities are sold at a lower price than what they would normally obtain in
the new market.
ISSUE 2

Shares on Premium refers to selling shares over and above the nominal value of the
share as reflected in the articles of association. This is for the purposes of raising more
capital for the company. When a share is sold at a premium, it is sold at a higher price
than the nominal value of the share.
Section 66 of the companies’ act 2012 stipulates that where a company issue shares at a
premium, a sum equal to the aggregate amount or value of the premiums on those
shares shall be transferred to an account, to be called the share premium account (it
must open a share premium account), and the provisions of this act relating to the
reduction of the share capital of a company shall, except as provided in this section,
apply as if the share premium account were paid-up share capital of the company.
In the case of Hilder Vs Dexter (1902) AC 474 at 480, it was held that a business may
issue shares at a premium, i.e., for a consideration in cash or in kind that exceeds the
nominal amount of the shares, without any particular power in its articles of
association.

Also in Shearer (Inspector of Taxes) v Bercain Ltd [1980] 3 All ER 295; Where shares
were issued at a premium, whether for cash or otherwise than for cash, s 56 of the 1948
Act required the premium to be carried into a share premium account in the books of
the company issuing the shares, and the premium could only be distributed if the
procedure for reduction of capital was carried through. It followed that, under s 56, the
taxpayer company was required to create the share premium account in respect of the
excess value of the shares acquired over the nominal value of its own shares issued in
exchange and, accordingly, was subject to a restriction imposed by a law within S 290(4)
of the 1970 Act on making the distribution.
Where a company issues shares at a premium at a consideration other than cash, then
the in the case of Henry head co ltd vs Ropner Holdings ltd 1952 Ch 124 then a sum
equal to the amount or value of the premium must be transferred to the premium
account.
Its pertinent to note that forfeited shares can form part of the un issued shares of the
company where the shareholder fails to pay for them upon call and can be dealt with by
the company through its directors by re-issuing or sold as the directors may deem fir at
a premium or per value, at a discount

17
Procedure: a board of directors meeting is convened and a board resolution to issue the
shares at a premium is passed. Shareholders or members apply for the shares and if the
company elects the members then.
ISSUE 3

Section 66(2) provides that the share premium account may, notwithstanding anything
contained in subsection (1), shall be applied by the company in;

 paying up un-issued shares of the company to be issued to members of the

company as fully paid bonus shares in writing off—
(a) the preliminary expenses of the company;
(b) the expenses of, or the commission paid or discount allowed on, any issue of
shares or debentures of the company; or
(c) in providing for the premium payable on redemption of any redeemable
preference shares or of any debentures of the company
(d) paying of unissued shares
(E) buying back shares (Redeeming shares) or Debentures
Task 2 (b) Whether Richard Mubi can sell and transfer 10 of his shares to Bemuga
Katochi

A person may acquire shares in a company when they are transferred to him or her by a
shareholder. This process requires an instrument of transfer duly signed by a transferer
or shareholder or in case of electronic securities such as those held in depository system
upon receipt of instructions of transfer of shares.

Section 83 of the Companies Act 2012 provides that shares shall be movable property
transferable in the manner provided by the articles. The provision suggests that a share
is a property of a shareholder and he/she has a right to deal with his property in any
way he pleases.

However, Section 5 (1a) of the companies act 2012 restricts the right to transfer shares
of a private company to other securities that is to say, a private company cannot issue to
a public company. In the case of Re Smith and Fawcett ltd [1942] ch 304 it was
provided that where articles of association refuse transfer of shares, it must be followed
and the shares will not be transferred.

Transfer of shares

1. is pre-conditioned to execution of a proper instrument transferring the shares.

2. This attracts stamp duty
3. and registration fees.

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Article 22 of Table A, provides that the instrument of transfer of any share shall be
executed by or on behalf of the transferor and transferee, and the transferor shall be
taken to remain a holder of the share until the name of the transferee is entered in the
register of members in respect of the share. This simply means that for there to be a
proper transfer of shares there must be a proper instrument of transfer delivered to the
company.

It should also be noted that a member has a right to transfer all or any of their shares by
an instrument in writing in any usual or common form or any other form which the
directors may approve subject to any restrictions in the Regulations that may be
applicable.

The transfer can be as amongst shareholders and what this does is to change the voting
power of the individual member who buys more shares.

Article 24 of Table A gives the directors powers to decline to register the transfer of a
share that is not fully paid to a person of whom they do not approve or on which the
company has a lien. In the case of Andrew Kibirige Lutwama v Haruna Kato,
Miscellaneous Application No. 651 of 2013 where Justice Madrama noted that this
provision does not forbid members from trading in shares amongst themselves.

Therefore in the instant facts, Since Richard Mubi owns shares in the company, he can
sell and transfer 10 of his shares to Bemuga Katochi with an instrument of transfer duly
signed by Richard as seen above.

Task 2 (c) Draft the necessary documents.

1. Notice of Directors’ meeting

THE REPUBLIC OF UGANDA
IN THE MATTER OF THE COMPANES ACT, 2012
AND
IN THE MATTER OF JOSRICH TRADING COMPANY LTD

NOTICE OF BOARD MEETING

19
TO: THE DIRECTORS JOSRICH TRADING COMPANY LTD.
TAKE NOTICE that the Board of Directors meeting of the company will be held on the
17th day of December, 2023 at Kampala at 10:00 in the fore noon.
Agenda
1. Opening prayer.
2. Communication from the chairperson.
3. Discussing the sale and transfer of Richard Mubi’s 10 shares.
4. Closing prayer.

By Order of Director,
_____________________________
Richard Mubi
Secretary
______________________________
Mukama Jacob

Dated this 9th day of December, 2023.

2. Board Resolution.
THE REPUBLIC OF UGANDA
IN THE MATTER OF THE COMPANIES ACT, 2012
AND
IN THE MATTER OF JOSRICH TRADING COMPANY LTD

BOARD RESOLUTION
At the Board of Directors meeting of The Company held at its registered offices on
the 17th day of December, 2023.
IT WAS UNANIMOUSLY RESOLVED AND PASSED THAT;
1. RICHARD MUBI, one of the Directors of JOSRICH TRADING COMPANY LTD

sold and transfers 10 shares out of his 300 shares to BEMUGA KATOCHI.

2. That the Registrar of Companies to be notified of the company’s decision

20
Dated at Kampala this 18th day of December, 2023.

__________________________

RICHARD MUBI

DIRECTOR

__________________________

ALICE KENAB

DIRECTOR

3. Transfer form.

SHARE TRANSFER FORM

THIS SHARE TRANSFER FORM is made on the 19th day of December, 2023 BETWEEN

RICHARD MUBI, of JOSRICH TRADING COMPANY LTD, (hereinafter referred to as

the “Transferor”)

AND

BEMUGA KATOCHI, (hereinafter referred to as the “Transferee”)

The transferor hereby transfers to Bemuga Katochi, 10 shares of his 300 shares for a
valuable consideration to hold subject to the same terms and conditions under which
the transferor held the same immediately before the execution hence and the Transferee
do hereby agrees to accept and take the said shares of the Company.

SIGNED by

Bemuga Katochi

Transferee

Richard Mubi

Transferor

IN WITNESS OF,

____________________________

Director

4. Shares Transfer Agreement.

21
 SHARES TRANSFER AGREEMENT

This Shares Transfer Agreement is effective from the 19th day of December, 2023.

BETWEEN

RICHARD MUBI (hereinafter referred to as the Transferor) of Josrich Trading Company

Ltd

AND

BEMUGA KATOCHI (hereinafter referred to as the Transferee) of Josrich Trading

Company Ltd

WHEREAS:

1. The transferor is a director of Josrich Trading Company Limited with the

ownership of 300 shares.

2. The Transferor wishes to sell and transfer 10 shares to the transferee.

NOW THEREFORE FOR VALUE RECEIVED, the transferor hereby sells and transfers
to the transferee 10 shares in Josrich Trading Company Ltd.

IN WITNESS WHEREOF, each party to this agreement has caused to be extended at

Kampala, this 19th day of December,2023

______________________ _____________________

Transferor Transferee

WITNESS

_______________________

5. Notice for call of unpaid shares.

THE REPUBLIC OF UGANDA

IN THE MATTER OF THE COMPANIES ACT, 2012.

AND

22
 IN THE MATTER OF JOSRICH TRADING COMPANY LTD

NOTICE OF BOARD RESOLUTION FOR CALL OF UNPAID SHARES OF

JOSRISCH TRADING COMPANY LTD

(Under Regulation 15 of TABLE A OF THE COMPANIES ACT)

NOTICE

TAKE NOTICE OF A CALL ON SHAREHOLDERS WITH UNPAID SHARES to be

paid by the 15th day of January 2024, at Head office ………………………in Kampala

TAKE Further NOTICE that you are required to pay a quarter of the nominal value of
your unpaid shares (30 shares) within thirty days from the date of the notice.

SHOULD YOU FAIL TO PAY within the above prescribed time, the company shall
proceed to forfeit and shall thus henceforth take over the shares.

By Order of Board

Dated this ................... day of December 2023

………………………………………………….

Secretary

TASK 3.

Advise on the process of getting money from Mathew Keinaruma who wants to have
stake in the company as shown above.

In this case the company will have to create redeemable preference shares which
shares it will offer to Mathew Keinaruma and in this way he will have stake in the
company. Hereunder is the process for creation of redeemable preference shares.

23
Redeemable shares are a form of corporate finance under equity financing which
permits apany limited by shares to issue shares whilst reserving the right to redeem
them by buying them back at the company at a future date.

They are usually allotted or issued to new investors such that if in the future, where the
company makes enough profit, they can be able to purchase these shares back with
sums stemming from money that would ordinarily be used to pay dividends to the
shareholders.

Redeemable preference shares allow for the repayment of the principal share capital to
shareholders. The company may redeem these shares at an agreed value on a specified
date or at the discretion of the director.

These redeemable preference shares are provided for under section 68(1) of the
Companies Act 2012 which is to the effect that a company limited by shares may, if
authorised, by its articles, issue preference shares which are or at the option of the
company are to be liable, to be redeemed. The company ought to indicate in its articles
of association in regards to creation and redemption of preference shares being done on
the terms and in the manner provided by the articles of the company.

According to the instant facts, this company adopted Table A as its Articles of
Association therefore creation of these shares will be in the manner specified therein
under Article 3 of Table A of the first schedule of the Act which is to the effect that
any preference shares may, with the sanction of an ordinary resolution, be issued on the
terms that they are, or at the option of the company are liable, to be redeemed on such
terms and in such manner as the company before the issue of the shares may by special
resolution determine.

Hereunder is the process in a nutshell.

Convening of the board of directors in accordance with Article 98(1) of Table A of the
Companies Act.

24
That will be followed by filing a board resolution allotting the shares subject to section
55 of the Companies Act 2012.

Payment of stamp duty and registration fees.

Filing a return of allotment to the company Registry subject to Regulation 18 of the

Companies (General Regulations) 2016 which provides for the form of return of
allotment of shares.

Lastly, issuance of a share certificate.

Question 2

Issue: What rights would Matthew Keinamura have as a holder of redeemable

preference shares?

Pursuant to Section 68(1) of the Companies Act 2012, a company limited by shares may
if authorized by its articles, issue preference shares which are at the option of the
company liable to be redeemed by the company.
A company can only issue redeemable preference shares where it is authorized by the
articles of association to do so.
Under Article 3 of table A, redeemable preference shares are issued with the sanction
of an ordinary resolution of the company on such terms as stipulated.
A board resolution issuing the shares is passed pursuant to the ordinary resolution
sanctioning the issue of redeemable preference shares.

The legal rights attached to the preference share of the modern limited liability
company, where these have not been set out comprehensively in the provisions which
create this class of shareholding, have not always had the same character. Rather these
rights have been developed, and in certain instances changed, in the course of a lengthy
process of legal evolution. The result at the present day is a company security which it
is probably widely considered, has a number of somewhat unsatisfactory features.

25
The general background of these features is that of the law relating to the rights of
classes of shareholders and in particular to the creation, interpretation, and variation of
class rights. The legal rights, which may be and normally are attached to all shares, are
broadly classifiable into three groups:

 Rights in relation to the payment of dividends (income rights);

 Rights of voting at company meetings (voting rights);
 Rights to the return of capital on an authorized reduction of capital or on a
winding up (capital rights).
Classes of shares are created where all or some of the general rights of shareholders
within a company are varied in relation to some part of the total share capital. The most
important classes are usually those created where preferential rights are conferred, in
which case the shares concerned may be termed preference shares as was enunciated in
the case of Alliance Perpetual Building Society v. Clifton [1967] 1 W.L.R.

Right in relation to the payment of dividends (income rights) provided for under
Article 118(2) of table A and share certificate.
The right to receive dividends moves hand in hand with the right to be issued with a
share certificate. Section 91 of the Companies Act 2012 provides for the duties of a
company with respect to issue of Certificates and it is to the effect that once shares are
allotted, the company must issue a certificate to the shareholder in 60 days. In Mathew
Rukikaire V Incafex ltd SCCA Civil appeal no 03 of 2015, the court observed that it’s
the duty of the company to issue a share certificate to the shareholder.
Dividends are not guaranteed, however, if the company is liquidated, the right to assets
and income of the company is exercised after bondholders and preferred shareholders
are paid of which redeemable preference shareholders are among the first to be catered
for in the company. This would be the first important right Mr. Matthew Keinamura
has in the above transaction.

The rights of voting at company meetings (voting rights) provided for under Article
62 of Table A.

26
Ordinary shares typically come with voting rights, which means that shareholders have
a say in the company's decision-making process. It includes electing the board of
directors, approving significant decisions, and voting on other matters that require
shareholder approval. In contrast, preference shares may or may not come with voting
rights, depending on the terms of the share issue. In some cases, preference
shareholders may have no voting rights or limited voting rights during meetings.
Manyindo J held in the case of In Re Nakivubo Chemist (U) Limited [1977] HCB 311,
that not allowing a shareholder to attend company meetings was evidence of
oppression.

Rights to the return of capital on an authorized reduction of capital or on a winding

up (capital rights).
In the case of reduction of capital or winding up of the company, preference
shareholders have priority over ordinary shareholders regarding receiving their capital
back. It means preference shareholders will receive their capital back before any
payments are made to ordinary shareholders. In addition, preference shareholders also
have a preferential right to any company assets available for distribution after the
company's debts have been paid. Ordinary shareholders, on the other hand, are at the
bottom of the priority list and will only receive any leftover assets after all other
creditors and shareholders have been paid. This would be the same case with Mr.
Matthew Keinamura.
Other Rights would include;

To receive copies of the annual report and the auditor’s report.

To receive corporate benefits such as right and bonus.
Right to give consent in writing for any alteration in the share
capital divisions.
Right to form quorum of the meeting in person or by proxy.
Right to register names of members.
Right without payment to certificate under a company seal of shares held by
them.

27
 Right to convene general meetings.
Question 3

Issue: How can Mathew Keinamura be paid back and what funds are used for this
purpose?

1. Issue notice to call a meeting

Convening of the Board of Directors in accordance with Article 98(1) of Table A of the
Companies Act 2012;
The Directors may meet together for dispatch of business and regulate their own
meetings as they think fit. This can be done within 5 working days. Attention has to be
paid to having the necessary quorum present which has to consist of at least two
persons holding or representing by proxy one third of the class of issued shares

2. Pass a board resolution and issue redeemable shares

A Board Resolution allotting shares is then filed with the Registrar of companies. It is
executed by a director and the secretary of the company or by two directors of the
company. Notably filing of the said Board resolution may be done within three
working days. This is provided for under Section 55 of the Companies Act

3. They are paid from the profits of the company,

Section 68 (1) of the Companies Act is to the effect that a company limited by shares
may, if authorized, by its articles, issue preference shares which are or at the option of
the company are to be liable, to be redeemed.

Section 68 (2) (a) of the Companies Act is to the effect that shares shall not be
redeemed except out of profits of the company which would otherwise be available for
dividend or out of the proceeds of a fresh issue of shares made for purposes of the
redemption.

TASK 4

ISSUES

28
 1. Whether the Board has any restrictions on its powers to borrow from Equity
Bank in the circumstances?

2. What are the necessary documents that would authorize the borrowing from
Equity Bank in the circumstances?

3. What considerations the Equity Bank will consider in the circumstances?

4. What is the process of perfecting securities in the event Equity Bank decides to
lend the required money to the company?

5. What is the effect of not perfecting securities?

RESOLUSION

 ISSUE 1. Whether the Board has any restrictions on its powers to borrow from
Equity Bank in the circumstances?

Section 198 of the Companies Act 2012 provides for the duties of the directors, but
section 198(a) in particular is to the effect that the directors shall act in a manner that
promotes the success of the company.

Regulations contained in Table A of the first schedule to the companies Act 2012 shall
apply to modifications and special provisions contained herein” Section 13 of the
Companies Act 2012 also allows or empowers Articles of Association a company
limited by shares to adopt all or any of the regulations contained in Table A if so
required.

Generally, a company’s powers are laid down in the statute under which it is
incorporated, its memorandum and to some extent its articles. The powers of a
company including the power to borrow are exercised by a board of directors who
are governed by the company articles of association.

Article 79(1), Table A, of the Companies Act 2012 gives the company directors
borrowing powers. It’s to the effect that the directors may exercise all the borrowing

29
powers of the company to borrow money. However, any such money borrowed shall
not at any time without the approval of the previous general meeting exceed the
nominal amount of the share capital of the company for the time being issued. A board
resolution is essential and required so as the company borrows money.

In Photo Focus Ltd v Mulenga Joseph (1996) IV KALR 102, it was stated that a
director has powers to borrow in the name of the company where the Articles of
Association do not prohibit the transaction.

The loan acquired by the director binds the company and the company was liable to
repay it. This is clearly stated in Section 52 of the Companies Act 2012 which clearly
states that the power of directors do bind the Company.

Any director intending to borrow money on behalf of the company needs to have
powers of attorney to act on behalf of the company.

The following are the restrictions on the borrowing powers of the board;

1. That the powers authorizing the borrowing are conferred by the Memorandum and
Articles of associations up to a certain limit.
2. The excess over that limit requires the sanction of the general meeting as established
in Article 79(1) of the Companies Act 2012.
3. The amount they are intending to borrow does not exceed the nominal amount of
share capital of Josrich Trading Company Ltd
4. The borrowing has to be authorized by a special resolution passed in a general
meeting attended by not less than three-fourths of such members as per Section 148 of
the Act.

5. Any other restrictions laid out in the Articles of Association of Josrich Trading
Company ltd.

 ISSUE 2. What are the necessary documents that would authorize the
borrowing from Equity Bank in the circumstances?

30
Notice of board meeting

THE REPUBLIC OF UGANDA

IN THE MATTER OF THE COMPANIES ACT, 2012

AND

IN THE MATTER OF JOSRICH TRADING COMPANY LTD.

NOTICE OF BOARD MEETING.

TO: THE DIRECTORS OF JOSRICH TRADING COMPANY LTD.

TAKE NOTE that the Board of Directors meeting of the company will be held on the
15th day of December, 2023 at Kampala starting that 9:00 O’clock.

Agenda:

1. Opening prayer
2. Communication from chairperson
3. Consideration for borrowing by taking a shareholder’s loan.
4. Consideration to issue a redeemable preference share to company members.

By Order of Director ------------------------------------

Company Secretary --------------------------------------

Dated this 2nd Day of December, 2023.

BOARD RESOLUTION

THE REPUBLIC OF UGANDA

IN THE MATTER OF COMPANIES ACT

31
 IN THE MATTER OF JOSRICH TRADING COMPANY LTD.

RESOLUTION

At the Board of Directors meeting of the Company held at its registered offices on the
15th day of December 2023 to consider borrowing from Equity Bank it was considered as
follows;

1. That the company obtains a loan of 5,000,000,000/= (Uganda Shillings Five Billion)
from Equity bank ltd.

2. That the funds be put to investment in the companies’ affairs of Josrich Trading
Company Ltd

3. That the registrar of companies be notified accordingly of the company’s decision to

borrow.

4. That quorum will be constituted by the members logged into a virtual meeting.

5. That powers of attorney be granted to Director Richard Mubi and undersigned by the
company secretary on behalf of the company authorizing him to borrow
5,000,000,000/= (Uganda Shillings Five Billion) from Equity Bank for the company
using his personal land as collateral security comprised in Kibuga Block 20 plot 143
land at Lubigi Rubaga Division.

Dated at Kampala this 01st day of December 2023.

…………………………
RICHARD MUBI
Director.
……………………….
WELUNGA YUSUF,
COMPANY SECRETARY.

32
Resolution to borrow

THE REPUBLIC OF UGANDA

IN THE MATTER OF COMPANIES ACT, NO, 1 2012

AND

IN THE MATTER OF JOSRICH TRADING COMPANY LIMITED.

BOARD RESOLUTION TO BORROW

AT A DULY CONVENED BOARD OF DIRECTORS MEETING OF JOSRICH

TRADING COMPANY LTD, held at the company offices on the 15 th day of December
2023;

It was reported that the company is to borrow money for its investment and concerns
were raised among directors as to whether the company would raise the estimated
amount of money worthy 8,000,000,000/= (Uganda Shillings Eight Billion).

The director Richard Mubi approached Equity Bank (U) Ltd which is willing to extend
5,000,000,000/= (Uganda Shillings Five Billion) using his personal land as collateral
security comprised in Kibuga Block 20 plot 143 land at Lubigi Rubaga Division.

IT IS HEREBY CERTIFIED THAT;

1. The borrowing contemplated is within the borrowing powers of the company.

2. The funds will be utilized for the purpose falling within the capacity of the
company.

I certify that the above is a true extract from the minutes of the BOD and that the
Resolution set forth were duly passed in accordance with and comply with the
memorandum and articles of association of the company.

33
---------------------------------------- ---------------------------------------

MANAGING DIRECTOR/CHAIRMAN COMPANY

SECRETARY

POWER OF ATTORNEY

THE REPUBLIC OF UGANDA

IN THE MATTER OF COMPANIES ACT, NO. 1 OF 2012

AND

IN THE MATTER OF JOSRICH TRADING COMPANY LIMITED.

POWER OF ATTORNEY

Know ye all men to whom this presents shall come that WELUNGA YUSUF
company secretary of Josrich Trading Company Ltd on behalf of the above company
(herein referred to as the DONOR) on this day 3 rd of December, 2023. Do hereby
appoint/nominate, order and constitute Richard Mubi of Kampala District also,
Director of Josrich Trading Company Ltd (herein after referred to as DONEE) to be
my true and lawfully Attorney to exercise the authority and powers in dealing with
all matters arising out of the borrowing money from Equity Bank and to perform the
following functions namely;

1. To borrow 5,000,000,000/= (Uganda Shillings Five Billion) from Equity Bank.

2. To use his personal land as collateral security comprised in Kibuga Block 20 plot
143 land at Lubigi Rubaga Division.
3. To transfer the borrowed 5,000,000,000/= (Uganda Shillings Five Billion) from
Equity Bank to the company’s bank account;
Bank name; stanbic Bank,

34
 Bank account; 9030005900833
4. I do hereby undertake to ratify whatever my Attorney lawfully does or cause to
be done by virtue of this power of Attorney
DATED at Kampala this 04th day of December, 2023

Signed for and on behalf of;

…………………………….
WELUNGA YUSUF,
DONOR, COMPANY SECRETARY.
………………………………….
RICHARD MUBI
DONEE,
DIRECTOR.
BEFORE ME

------------------------------------------------------

COMMISSIONER FOR OATH

Drawn and filed by

A5 & co Advocates
P.O.BOX 411 Mbarara- Uganda

ISSUE 3. What considerations the Equity Bank will consider in the circumstances?

Whether the company has a registered office per the requirements. Below are some of
the considerations Equity Bank Uganda will consider first before lending the said loan,

Whether the company is registered with the Registrar of Companies, upon payment of
the prescribed fee per section 264(1) (a) of the Companies Act 2012.

To effect this, the company has to present a certified copy of the certificate of
incorporation per section 264(1) (b) of the Act. Section 22(1) of the Act, a certificate of
incorporation is conclusive evidence that all the requirements in respect of registration

35
and of matters precedent and incidental to registration have been compiled with and
that the association is a company authorized to be registered and duly registered under
the Act.

Whether the company has other charges over the property it is intending to use as
security. Under section 106 (1) of the Act, it is the duty of a company to send to the
Registrar for registration the particulars of every charge created by the company and
under section 113(1) of the Act, a limited liability company shall keep, at the registered
office of the company a register of charges and enter in it all charges specifically
affecting the property of the company.

Section 264(1)(a), where the lender inspects the documents or the company file kept by
the Registrar of companies to gain access to the notification of the situation of the
registered office and the registered postal address of the company per section 116 on
the notification of the registered postal address of the registered company.

Establish the management or leadership of the company that is to say by inspecting the
register of directors and secretaries kept by the company in accordance with the
provisions of section 228 of the Act which states that a company shall keep at its
registered office a register of its directors and shareholders.

Whether there is authorization from the company board of directors by way of board
resolution to borrow money on before of the company. In the case of Necta (U) ltd vs
Crane bank (Misc Appl No 470 of 2003) in this case, borrowing powers of a company
were vested in the company’s board of directors and so in this case, the directors must
have the power to borrow the said amount of money. Section 153 of the Act, by
inspecting of the minute books containing the minutes of proceeding and in the
circumstances the minutes of the board meeting in which the board resolution
authorizing the directors to borrow money from the bank was passed.

Inspecting the documents or the company file kept by the registrar of companies in
accordance with the provisions of section 264(1) of the Act, to establish the nominal

36
share capital of the company. This is because, the company is not allowed to acquire a
loan beyond its nominal share capital per the provisions of Article 79(1) of Table A of
the Act.

ISSUE 4. What is the process of perfecting securities in the event Equity Bank
decides to lend the required money to the company?

Security/Security interest is one which is taken or retained by seller of item to secure its
price or taken by person who advances funds to enable one to acquire rights in
collateral. Black’s Law Dictionary 1235 (6th ed. 1990). It is a form of interest in
property which provides that the property may be sold on default in order to satisfy the
obligation for which the security interest is given. Black’s Law Dictionary 1357 (6th ed.
1990)

Security is a legal right granted by a borrower to a lender over the borrower’s property
allowing the lender to sell and apply the proceeds of the sale of the property to
repayment of the debt in case of default by the borrower. The security is created with
little formalities only requiring an agreement between the parties that clearly describes
the collateral and provides the maximum amount for which the security may be
enforced. The agreement must state the monetary value of the security and be
witnessed by a third party.

Once created the creditor has a duty under the act to “perfect” the security either by
registration at Uganda Registration Services Bureau (URSB), by taking physical
possession of the collateral or in case of a deposit account when the financial institution
is informed of the creation of security over the account. Perfection gives the security
interest legal force and acts as a notice to third parties that the property has been used
to secure a debt. The mode of perfection will depend on the type of security and the
convenience the mode of perfection grants to both parties.

How is the security enforced? The method of enforcement will depend on how the
creditor “perfected” the security. Where it is by registration the creditor must give

37
notice to the debtor and register a default enforcement notice with the registrar at
URSB.

A creditor who took possession of the collateral can dispose of the collateral by sale. In
both instances, the debtor has to be given a notice of default and intended sale and any
sale has to be by auction. The lenders will always ask for security which may come in
form of;

- An agreement with a third party who promises to repay the loan in case the borrower
fails to (guarantor) or

- An agreement by which by which the borrower transfers or agrees to transfer property

to the lender to be retained until the loan is repaid (pledge, mortgage, charge)

Once security is validly created, it is binding between the security provider and the
secured party. However, it is not necessarily automatically binding on third parties
such as liquidators etc. Therefore, further steps must be taken to “perfect” the security.

Section 2 of the Security Interest in Movable Property Act, 2019 defines a perfected
security as security interest that is protected from third party claims. It is any secure
interest in an asset, which cannot be claimed by any other party. So perfecting
securities refers to the steps taken following the creation of a security to ensure its
enforceability against third parties

Processes of perfecting securities.

i. Registration

Section 105 of the Companies Act 2012 – every charge created by a company registered
in Uganda is, so far as any security on the company’s undertaking or property is
conferred by it void unless registered within 42 days after it is created. Under Section
111, an application can be made to the Registrar for extension of time within which to
register.

38
Section 23 of the Companies (General) Regulations provides that every charge by a
company registered in Uganda or a foreign company being a charge over property
situated in Uganda must be registered using Company Form 13.

Upon registration of the charge, the registrar issues a certificate of registration of a

charge in Company Form 17 and this is provided under Section 108 of the Companies
Act 2012 and Regulation 23 (4) of the Companies (General) Regulations.

It is important to note that under Section 113 of the Companies Act 2012, a limited
liability company is required to keep at its registered office a register of charges.

Section 98 of the Companies Act 2012, is to the effect that a company which has issued
a series of debentures must keep at its registered office a register of holders of the
debentures.

Fees payable

Registration fees – HEAD D of the (Company Fees) Rules

ii. Perfection by taking possession of the collateral

Here, possession may be physical or actual. It is not possession if the collateral is still in
actual or apparent control of the grantor or an agent of the grantor.

iii. Perfection by taking control of a deposit account where the security is a deposit
account.

Under Section 12(3) of the Security Interest in Moveable Property Act, 2019 control of
a deposit account exists where;

(a) Automatically upon the creation of the security interest if the financial institution
that maintains the deposit account is the secured creditor and;

(b) Upon the conclusion of an agreement for the control of a deposit account made by
the financial institution, the grantor and the secured creditor.

39
ISSUE 5. What is the effect of not perfecting securities?

Section 106 of the Companies Act 2012- non registration of a charge render it void as
against the liquidator and any creditor of the company.

G.M Combined Limited v A.K Detergents Ltd S.C 9/2000, court held that unregistered
debentures under the Registration of Titles Act couldn’t effect transfer of land because it
is registration that confers legal interest that enables one to deal with property as
registered proprietor. Kasozi Ddamba v M/S Male Constructions Co. (1981) HCB 26.

40