How do I ensure that my business is right with the law?

An entrepreneur out there, you are looking forward to starting a business, by yourself, or you are going to employ others, or you are even already operating and you are employing people in your business. Everything looks cool, not until it’s not cool.  The legal requirement is simply those thing you must pay attention to when starting up or actuating your business concept, to run your business and basically things you don’t want to miss out in your business least it becomes vulnerable. The few things you must put into consideration after which your business is a legitimate entity. You do not want the authorities bothering you about the loopholes in the setting up of your business. So you need to identify your business in terms of the law.

In legitimate businesses you want to keep your business right with the law. So we shall get to know why it’s important to comply with the law, the types of businesses, the major things a business ought to have among others.

In this discussion we bring to you a professional who has spent about 10years in the startup business and world in relation to the law, Moses Ngorok, who is a lawyer with Wezi Consultants Limited. We had a one hour’s discussion with him in our webinars and he went through the legal requirements of a business in Uganda. Things that startup entrepreneurs ought to pay attention to as they start or after they are already in operation to avoid attracting big fines that can push them out of business at some point in future.

Why is it important to comply with the law?

There are many reason as to why our businesses must comply with the law. Some of these reasons include.

  • Reduced legal problems. The law is usually silent for those starting, it may not follow up your operations as yet, it’s called a grace period. But after you have grown and are making good progress they law surfaces. You do not want to attract fines for neglecting compliance while still a startup.
  • Improved operations and safety. This include better working conditions for you and your employees. The employment law so asks business owners to ensure safety for their employees.
  • Makes your business ready for investment, attracts investors easily. This is because compliance with law gives the investors security that their money is not being wasted and tainted.
  • Ensures better public relations. Usually the stake holders in your business want to work with you because you are legit law abiding in all your operations.

What are the types of businesses there is?

There are various kinds and types of businesses from sole proprietorship to public and private companies to partnerships and trusts. These all have different ways through which the law recognizes them.

  • Sole proprietorship. The kind of business where there is only one owner of the business. To be precise, the business is owned by one person. h/she runs the operations of the business.
  • Partnerships; these may include limited liability partnerships. Basically people or individuals come together to run a business.
  • Companies
  • Cooperatives/ savings and credit cooperatives. These are commonly known as Sacco.
  • Collective investment schemes; for example, the capital market investors. Usually people come together to grow their wealth
  • Trusts. For example, unit trusts. Basically these hold assets on behalf of particular individuals, they invest in these assets and at the end of the day, there are known beneficiaries of these assets or profits. Further examples include the real estate investment trust.
  • Clubs,
  • Nongovernmental organizations.
  • Building societies and
  • Unincorporated ventures.

However, our focus this time round shall be on companies.

In Uganda companies are divided into two main branches that is;

  • Public companies and private companies. Public companies are which the government has an upper hand in the financing and running of the business. In other words, they hold most shares in the business.

Whereas private companies are deliberately owned and run by the private individuals

There are also some other types of companies these include the local companies and the foreign companies. Local meaning majority of the shares belong to nationals of the specific country where they are registered. Foreign companies are those where majority of the shares in the company are owned by non-nationals of the particular country they are located in. thus foreigners run the business.

There are holding companies. These are companies that hold controlling powers and interests over other companies. So much so that decision making lies on them other than the real company.

Subsidiary companies. These are companies that is subject to a holding interest as defined by the company’s act.

Limited companies, unlimited / limited by shares/ limited by guarantee companies. A limited company is one where the company liabilities and profits are separated from the owners. thus a company bears its own name, sue in its own name bears its own account among others. Limited by guarantee simply are Those nongovernmental organizations like foundations. The denominator is that they are nonprofit organizations. The limited by shares company are those companies that are blended companies, often referred to as social enterprises.

The law recognizes companies as persons. Though they are not natural human beings but rather artificial persons that have a right to sue and be sued. Most especially the limited companies. The law has exceptions.

What are the essential things that accompany must have right from the start in relation to the law?

A company to be called so, must have particular organs that make it up. These include the following.

  • Shareholders/ members. This is the highest body of the company. especially for a profit making company. For a nonprofit company they are referred to as members.
  • Board of directors. These can comprise of either the shareholders/members or even independent human beings. They are responsible for developing and execution of the company strategy.
  • Management. These report to the board of directors and are responsible for the implementation of the company strategy, thus dealing with the day to day operations of the business/company or nonprofit organization. They include the C-suit officers that is CEO, CTO, CFO among others.

A company/ every legal company must have the following activities as seen by the law. These include, the general meeting, the statutory meetings, the board of directors meeting, and extra ordinary meetings.

  • A general meeting is a shareholders wherein particular they get the Board of directors to account for the trend of the company or business. They hold the board accountable. It takes place annually. And it’s from this meeting that they receive dividends
  • Statutory meetings. They are held once in the life time of a company especially 18months onto the time of incorporation. The meeting is held to ensure the company is not a shelf company.
  • Board meeting. They are meetings exclusive to the board of directors. It is held as and when they agree. The decisions and resolutions taken in this meeting must be recorded and registered.
  • Extra ordinary meetings. They are unscheduled meetings that arise out of an emergency or a need that is usually urgent.

What are the legal things that you can use to determine whether or not your startup is in line with the law?

The legal check list for your business irrespective of the fact that it’s a startup or not are the following.

  • Select the appropriate type of legal entity.
  • Develop and sign all the need documents and contracts/ founder contracts, like the shareholders’ agreements, and articles of association.
  • Protect all your intellectual property including brand names, logos, patents, copyrights, and domains et cetra
  • Comply with capital market laws in raising capital.
  • Compliance with labor and employment laws,
  • Institute management and operational policies for your business like the human resource policy, risk management policy, crisis and emergency policy, social media and internet policy, among others
  • Prepare contracts for customers, suppliers, employees and others key third party relationships.
  • Take insurances.

What are the things that government expects of companies and businesses?

There are several things that are expected of companies and businesses or more so startups. And compliance to such standards to some extent gets your business smoothly running.  The rationale of this is to protect all the stake holders involved in the eco system that is from consumers, customers, investors, owners, and the whole business community.

  • File a return on allotment of shares at least 60days after allotment.
  • Notify the registrar of the registered physical and postal address of the company 14 days after incorporation of the company.
  • Obtain a trading license from the local authority in whose jurisdiction your business is located.
  • Obtain specific licenses where they are necessary and required depending on the line of business. Some sectors require specific licenses in order to operate medical sector requires licenses from the national drug authority among others
  • Investment licenses for foreigners is a must.
  • Register for taxes and acquire a tax identification number from the relevant and appropriate body.
  • NSSF mandatory registration where the company has more than five employees.
  • Endeavor to file the company’s income tax returns which can be provisions; interim. Filing tax returns does not usually mean that one is paying taxes as seen in the previous article.
  • Filing the company’s annual returns evert after 12months commencing from the twelve months after incorporation within 42 days of the annual general meeting.
  • Register all resolutions of the company and keep the record of the resolutions.
  • Keep record of the minutes of the company.
  • Keep a register of the shareholders list and issue a shareholder’s certificate and share warrantee to shareholders for non-profit organizations.
  • Have the company accounts audited every year.
  • Have and generate a company seal,
  • Annual returns must be filed even for non-governmental organizations.
  • Take note that NGO LISCENCES must be renewed periodically
  • Observe occupational health and safety standards for your business and industry.

There are obviously detailed requirements that businesses must comply with set up by the government. The law acts at an appropriate time it is therefore good to know what you ought to do before dragged by the law, because then it enforces with fines. For startups some of these fines can end up sending you out of business. And usually the earlier the better.

NB. Many of the information was acquired from Mr. Moses Ngorok of the Wezi Consultants limited. A few additions were made though. If you want to get full discussion email [email protected]