WEEK ONE

 FORMS OF BUSINESS ASSOCIATIONS

 - Companies governed by the Companies Act No.1 of 2012 (Co Act).
 Artificial Legal persons at Law with capacity to sue and be sued.

- S.2, Co Act defines a company as incorporated there under

- Types of companies

a) Private company, S.4 (2) (a),(b),(c) Co Act - Krementi Lyangombe & Anor v R (1959) 1 EA

- S.5, restricts transfer of its shares and other securities

- Minimum number of members is ONE maximum is ONE HUNDRED
- Prohibits any invitation to the public to subscribe for shares or debentures
- S.4 (2) (c) An unlimited company without limit on liability of members
Private company cont…
 S.4 (1) Single Member Company with one Member
 S.186 (1), Single Member nominates Nominee director and Alternate Nominee Director
 S.186 (2)(a) Nominee director manages affairs of the company upon death of the member
 S.186 (2) (b) Informs the Registrar of the death of a single member by providing particulars of legal heir within fifteen days
 S.186 (2) (c) transfers shares to legal heirs of the single member
 S.186 (2) (d) Calls the General meeting of the Members to elect directors
 Company limited by Guarantee, S.4(2)(b)
 Public Company, S.6. Number of members is unlimited but beyond One Hundred: read: Nash v Lynde (1926) AC 158, KCC Football Club v Capital Markets Authority
HCCS 367/2007, Re South of England Natural Gas and Petroleum Co Ltd (1911) 1 Ch 573
 Statutory Company OR Body Corporate is a company established by an Act of Parliament e.g Electriicity Regulatory Authority, Uganda Revenue Authority e.t.c
 Body Corporate is a Legal person with capacity to sue and be sued
 Body Corporate is established to provide specific services
Partnership under the Partnership Act, 2010
 S.2 (2) Partnership Act limits the number of partners to TWENTY being a general Partnership e.g
for trade
 S.2(3) Limits the number of partners to FIFTY being a professional Partnership e.g Lawyers,
Medical Doctors, Engineers, Surveyors, Architects, Veterinary Doctors, Pharmacists, Human
Resource Practioners
 S.47 Limited Liability Partnership where one or more of the partners enjoys liability while the
liability of the other partners is unlimited
 Partnership is not an artificial legal person but Partners are in liable jointly for all debts and
obligations of the firm incurred while she/he is a partner S.9 Partnership Act
 Order 36 Rule 3 Civil Procedure Rules SI 1-71 services of summons is upon any one of more of
the partners
 Order 36 rule 6 where partners are sued in the name of the Firm, the y shall appear individually in
their own names but all subsequent proceedings shall continue in the name of the firm
Non Governmental Organisation under the Non Governmental Organisation
Act, 2006 as amended
 The Board of an NGO can sue and be sued
 Established for voluntary activities e.g civil rights education, orphanages,
religious education e.t.c
 NGO’s are registered by the NGO Board under Ministry of Internal Affairs
 Sole Proprietorship under the Business Names Registration Act___
 Name registered under the Business Names Registration Act usually for trading
purposes
 Sole Proprietorship is sued in personal capacity
Trust under the Trustees Incorporation Act Cap 162
 It is for voluntary objectives e.g managing property on behalf of beneficiaries who are the Trustees
 Board of Trustees are the Legal persons that can sue and be sued
 Examples are Trusts established for management of Church land e.g the Kampala Catholic Archdiocese Trust, Mbarara
Catholic Archdiocese, Gulu Catholic Archdiocese e.t.c
 Trusts are registered by the Minister of Lands, Housing and Urban Development
 Institutional Traditional Leaders, e.g Kabaka, Omukaam are Corporate Soles, Article 246 (3) (a) of the 1995 Constitution
 S. 2(2) of the Administrator General’s Act Cap 157 establishes the Administrator General as a Corporate Sole
 Holding company is one which has another subsidiary, S.161(5)
 S.161(1)(a) (b),Read: Ishasha Mines Ltd v National Enterprises Corporation (1949) VI KALR 57 HCCS
 Nsimbe Holdings v Attorney General Constitutional Petition No.2 of 2006
WEEK TWO
Corporate personality
 Company is an artificial legal entity separate and distinct from its members or shareholders, S.2 SALOMON Vs
SALOMON & CO. LTD (1897) AC 22, LEE Vs LEE’S AIR FARMING LTD (1960) 3 ALL E.R 420, MACAURA
Vs NORTHERN ASSURANCE CO. LTD (1925) A.C.619
 It has its own name by which it is recognized.
 It can own its own property i.e. assets like buildings, land, bank accounts. etc
 It can sue or be sued in its own name.
 Even if a member or all the members die, the company will remain in existence, in other words it has perpetual
succession.
 It can be a creditor i.e. borrow money in its own name and use its assets as security and it will be responsible for paying
back ‘such debts.
 It can employ its own employees, including its members or shareholders.
INCORPORATION OF A COMPANY
Formalities under the Co Act
 Reservation of company S.36 PROVIDED name is not undesirable
 Reservation of name is for 30 days or in any case not longer than 60 days
 Name is undesirable if:
 It is like the name of an existing company or other business entity

See S.36(2), Standard Signs Ltd v Fred Leo Ogwang & Standard Signs Ltd HCCS No.240/2006,CMC Automobile Ltd v CMC Hughes Ltd &
Anor (2008) 1 EA 73
 If it is a misleading name, e.g a company likely to have small resources suggests that it is going to trade on a great scale over a wide field
 If it suggests some connection with Government activities
Formalities cont…
 If it is misleading as to the nature of business
 If it includes a surname which is not that of a proposed director unless circumstances
justify the inclusion
 If it includes words which might be trademarks or might amount to passing off
 If the name is prohibited by Statute , S.38
 If name suggests connection with unlawful activity or is offensive, see R v Registrar of
Companies QBD 17/1980
 If name includes the words ‘limited” or “ltd” other than at the end, S.39, 41(power of
Registrar to dispense with ‘Ltd or Limited” in some companies.
 Publication of name by the company; name shall appear outside of every company office,
name shall be engraved on its seal , name must be written on business letters, bills,
promissory notes, notices –S.117
Formalities cont…
 S.5 and 1 of the Finance Act,2013 on making request to th Registrar to approve and
reserve name of a company UGX 20,000 is payable
 Registration of Memorandum of Association which must be in English language, S.7
 Memorandum of Association for a company limited by shares or Guarantee must state that
the liability of its members is limited
 Memorandum of a Company limited by Guarantee must state the amount which each
member undertakes to contribute to the assets of the company in the event of winding up
 Memorandum shall be dated and signed by each subscriber and witnessed by an attesting
witness S.8
Formalities cont…
 S.11 A company may register Articles of Association and other regulations as deemed necessary
 S.13 a company may adopt all or any of the regulations under Table A
 S.14 (1), it is mandatory for a public company to adopt Table F
 S.14 (2) it is optional for a private company to adopt Table F
 S.15 Articles of Association shall be
- printed in English language,
- divided into paragraphs number consecutively
- signed by each subscriber to the Memorandum of Association
- Signed by at least one witness
 Payment of stamp duty under the Stamps Act and Registration fees under the Company Fees Rules
WEEK THREE
Contents of the Memorandum of Association
 Name clause S.7(1), S.36 the last word on name of the company must state “limited or Ltd” in case of a company limited by shares or
guarantee
 Objects clause S.7(1)(c) may be stated. Not mandatory to state objects of the company

 Cotman v Brougham (1918) AC 514: The purpose of the objects clause is to protect the subscribers who learn from it the purposes to which
their money can be applied and to protect persons dealing with the company who can discover from it the extent of the company’s powers:
 See R v Registrar of Joint Stock Companies Ex Moore (1931) 2 KB 197, The Registrar refused to register a company because its main
object was to sell in Great Britain tickets to a Republic of Ireland lottery known as the Irish sweep at a time of bad blood between Ireland and
Britain. The company’s promoters applied for judicial review of the refusal to register. The court found that selling the tickets would have
been an offence under the legislation in force and the Registrar was right to refuse to register a company which was not formed for a lawful
purpose
Contents of Memorandum cont…
 Read Naks Ltd v Kyobe Senyange (1982) HCB 52
 Reasonably incidental S.7(5)(b), a company has power to do all such things as are incidental or
conclusive to the carrying on of any trade or business by it: Read AG V Great Eastern Railways
Company (1880) 5 AC 473, Evans v Brunner, Mond & Co Ltd (1921) I Ch 359
 Share capital clause S.7(4) , a company must state the amount of share capital with which the
company is to be registered save for an unlimited company: see Andrew v Gasmeter (1897) 1 Ch
361, the Memorandum of Association must state the amount of share capital with which the
company proposes to be registered and the division of the share capital into shares. It is the
Articles of Association that must explicitly provide the rights held by the shareholders with regard
to their shares. There is no implied condition in the memorandum that all shares are ranked
equally.
 The share capital is fixed and certain and the creditors look to it as security. An unlimited
company does not need to state the share capital as creditors will not rely on this as primary
security
 Limited liability clause S.7 (2). The Memorandum of a company limited by shares or by guarantee
must also state that the liability of its members is limited
Limited liability clause cont…
 Fredrick Sentamu v UCB (1983) HCB 59, a limited liability company is a separate and
independent form its directors, shareholders and other members. Individual members of the
company are not liable for company debts. Even as managing director, the plaintiff could not
personally be liable for the debts of the company. The second defendant’s action in holding him so
liable was therefore unjustified and unlawful.
 S.7(3), the Memorandum of Association of a company limited by guarantee must state that each
member undertakes to contribute to the assets of the company if it being wound up not exceeding a
specified amount.

 The Association clause under which the subscribers declare that they desire to be formed into a
company in pursuance of the Memorandum of Association and agree to take the number of shares
set opposite their respective names.
Alteration of the Memorandum of Association: Table A, Article 49
 S.9, a company may not alter the conditions contained in its memorandum except as provided
under the Co Act
 S.43, alterations in Memo may be for increasing the liability to contribute to share capital
 The mode of alteration is by Special Resolution S.10 (2) by members of not less than 15% in
nominal value of issued share capital if not limited by shares by not less than 15% of the
members , this could be due to the following reasons;
- S.10(a) if the company intends to carry on business more economically or efficiently: See Re
Cyclist Touring Club 91907) 1 Ch 269, Re Scientific Poultry Breeders Association Ltd (1933)
Ch.277
- S.10(b) to attain its main purpose by new or improved means
- S.10 (c ) to enlarge or change the local area of its operations: see Re Indian Mechanical Gold
Extracting Co (1891) 3 Ch 538
- S10 (d) to carry on business which under existing circumstances may conveniently or
advantageously be combined with the business of the company: see Re Patent Tyre Company Ltd
(1923) 2 Ch 222
- S10 (e) to restrict or abandon any of the objects specified in the Memo: Re Hampstead Garden
Suburd Trust Ltd 91962) Ch 806
- S.10 (f) to sell or dispose of the whole or any part of the undertaking of the company
- S 10(g) to amalgamate with any company or body of persons
Alteration of Articles Cont…
 Alteration of Articles of Association S.16 (1) by Special Resolution: See Re Duncan Gilmour &
Co Ltd (1952) 2 All ER 871
 S.43 no alteration to Articles of Association which increase liability of a member without the
member’s consent in writing
 S.247 (3) where a court order makes any alteration to any Memo or Articles, the company shall not
have power without the leave of the court to make any further alteration inconsistent with the
provisions of the order
 S.82 requires the separate consent of 86% of the class to any proposal to alter the Articles of
Association in such a way as would vary their class rights
 Procedure for alteration of Articles of Association is by call of Extra ordinary meeting – Table A,
Article 49
 Finance Act 2013 S.5 & 1st Schedule, registration of the special resolution is upon payment of
UGX 20,000
 Malleson v National Insurance & Guarantee Corp (1894) 1 Ch 200, provided that the special
resolution complies with all formal requirements and is duly passed by the requisite majority the
articles as altered bind every member, even those who did not vote in favour of the alteration to the
same extent as the original articles
WEEK FOUR

Consequences of incorporation
 Liability
- Company is a distinct legal persona liable for all its debts and obligations, See Sentamu v UCB (1925) AC 619
- S. 4 (2) (b)An exception is with an unlimited liability
- Members in an unlimited company are liable for its obligations without any limitation on the amount payable

 Perpetual succession
- Changes in membership due to bankruptcy or death can not affect the company’s existence.
- Existence of a company can end through winding up as per the Insolvency Act 2011, striking off the register or amalgamation and
reconstruction
Consequences of incorporation cont…
 Transfer of shares
- Shares are property that are transferable save for private companies where transfer is restricted to existing members,(pre-emption rights)
 Borrowing
- A company as a distinct legal person can borrow funds and provide security to the lender.
 Formalities, publicity and expenses
 Expenses accrue from registration and formalities must be followed, henceforth the company losses privacy

- The requisite documents, Articles and Memorandum of Association are prepared and registered at a cost.
- Once registered these documents become public documents open to public inspection
 Ownership of property
 A company as an artificial legal person can own property separately from its members and further occupy premises as a Tenant: Hindu Dispensary v Patwa (1958) EA 74
 Legal proceedings
 As a legal person a company may enforce its legal rights or be sued for breach of its duties before Courts of Law.
Effect of Memorandum and Articles of Association
 S.21 The Memo & Articles of Association bind the company and members of the company to the
same extent as if they had been signed and sealed by each member
 Contractual effect of Articles of Association
 Foss v Harbottle (1843) 67 ER 189: the articles constitute a statutory contract which binds the
members of the company. An action to enforce the contract must be brought in the name of the
company except where a personal right is infringed. The Articles constitute a contract between the
company and the members.
 Hickman v Kent/Romney Marsh Sheep Breeders Association (1915) 1 Ch, the company was
entitled to have the action stayed as the articles constituted a contract between the company and its
members in respect of their ordinary rights as members
 Read Wood v Odessa Water works Co (1889) 42 Ch D 636, Muhammed Zziwa Kizito & 3 Others
v Spidiga Umma Foundation HCCS 12/2008
 The Articles of Association constitute a contract between the individual member and every
member
 Read Rayfield v Hands 91958) 2 ALL ER 194, Lyle & Scott Ltd v Scott’s Trustees (1959) 2 ALL
ER 661
Contractual effect of Articles cont…
 Members are only bound by and entitled to contractual benefits in their capacity as members –qua
members
 Eley v Positive Life Assurance Co 91876) 1 Ex D 88, the Lawyer was suing not as a member of
the company so he could not base his suit on the Articles
 Read Beatie v E&F Beatie Ltd (1938) Ch 708, Re Tavaroue Mining Co, Pritchard,s Case (1873) 8
Ch App 956, Browne v La Trinidad (1887) 37 Ch D 1
 S.21 is a distinct contract that is not defeasible on the grounds of misrepresentation or mistake.
Court has power to rectify the statutory
Interpretation of the Memo and Articles of Association
Articles of Association
 Holmes & Anor v Keyes (Lord) & Ors (1959) Ch 199: The Articles of Association of the company
should be regarded as a business document and should be construed so as to give them reasonable
business efficacy where a construction tending to that result is admissible on the language of the
articles, in the preference to a result which would or might prove unworkable
Interpretation of Memorandum and Articles cont..
Memorandum
 Egyptian Salt & Soda Co v Port Said Association (1931) AC 677, there is no rigid canon of construction to be applied to the Memorandum like any other document it
must be read fairly and its import derived from a reasonable interpretation of the language it employs
 Angostara Bitters & Co Ltd v Kerr (1933) AC 550, The Memorandum and Articles must be read together at all events so far as may be necessary to explain any
ambiguity appearing in the Memorandum or to supplement it.
 Memorandum versus Articles

 In case of conflict between the two, the Memorandum of Association will prevail.

 Any alteration in the Articles of Association must conform to the Memorandum of Association otherwise the alteration is void

 Duncan Gilmour & Co Ltd (1952) 2 ALL ER 871, the Memorandum of Association takes precedence over the Articles of Association and the Articles cannot be
referred to construe the Memorandum unless there is high ambiguity in the Memorandum of Association. The Memorandum is the more fundamental of the two
documents and is the one to which the parties forming the company put heir names
 Read Guiness v Land Corporation of Ireland (1883) Ch D 349, Welton v Saffery (1897) AC 299
WEEK 5
Pre Incorporation transactions/contracts and Promoters
 A Promoter is who starts off the venture, any venture not solely for himself but for others but of
whom he may be one: Tengku Curing Co Ltd v Mohd Latiff bin Shah Mohd (1996) 2 MLJ
265
 Read Twycross v Grant (1877) 2 CPD 469, Kololo Curing Co Ltd v West Mengo Co-op Union
Ltd (1981) HCB 60
 Re Great Wheal Pologoth Co Ltd (1883) 53 LJ Ch 42, persons acting in a purely professional
capacity who have been instructed by a promoter e.g Lawyer do not become promoters themselves
Duties of a Promoter
 Obligation to disclose profits to the intended shareholders or Board of directors
Read Gluckstein v Barnes (1900) AC 240
 Whaley Bridge Printing Co v Green (1879) 5 QBD, the promoter was accountable to the
company for that profit
Duties of promoter cont…
 Lidney & Wigpool Iron Ore Co v Bird (1866) 38 Ch D 85, a promoter of a company is accountable to it for all
monies secretly obtained by him from it
 Duty to disclose to the company any interest which he or she has in a transaction entered into by the company
 Erlanger v New Sombrero Phosphate Co (1878) 3 App Cas 1218, Re British Seamless Paper Box (1881) 17 Ch
D 467, the Promoters of a company stand in a fiduciary relationship to investors, meaning they have a duty of
disclosure which had not been done therefore the contract could be rescinded.
 The duty of disclosure does not end on the incorporation of the company or on the appointment of the board of
directors.
 Once the company has acquired the property or business which it has formed to manage, the initial capital has been
raised and the board of directors has effectively taken over management from the promoters the latter’s duties
terminate
Remedies for breach of duty
 Where the promoter has sold his own property to the company, the company may rescind the
contract and recover the purchase money paid. For rescission to be available for the company,
restitution in integrum has to be possible
 This right to rescind will be lost if an innocent 3 rd party has acquired an interest in the property
 Erlanger v New Sombrero Phosphate Co (1878) 3 App Cas 1218, as a general condition to a
rescission there must be a restitution in integrum
 The company may compel the promoter to account for any profit he has made
 Gluckstein v Barnes (1900) AC 240, court held there was in breach of their duties as promoters
and the company was entitled to recover the profit from them. The company can recover the secret
profit even though they chose not to rescind the contract.
 The liability of promoters is joint or several. A promoter who is found liable may recover
contributions from the other promoters
 The company may sue the promoter for damages for breach of his fiduciary duty of skill and care
making him liable in negligence
 Re Leeds & Hanley Theatres of Varieties Ltd (1902) Ch 809, breach of fiduciary duty results into
liability in damages to the company.
Pre-incorporation contracts, S. 54(1)
 Before incorporation the company lacks capacity to make the contract and an agent cannot contract on behalf of a principal who is non
existent.
 Kelner v Baxter (1866) LR 2 CP 174, the promoters of a company, Gravesend Royal Alexandra Hotel Co ordered stock of Pound Sterling
900 worth of wine from a supplier and signed a written agreement on behalf of the proposed company. The company was subsequently
incorporated but latter went into liquidation. Court held that if Gravesend Royal Alexandra Hotel Company had been existing at the time of
signing the agreement, the persons who signed the agreement would have signed as agents of the company. But as there was no company in
existence at the time, the agreement was wholly inoperative unless it was held to be binding on the defendants.
 Read NEC & 2 Ors v Nile Bank Ltd (1995) 1 KALR 138
 Seremba Mark v Isanga Emmanuel & 3 Ors Companies Cuase 24 of 2005, the Constitution whatever its legal effect on promoters was a pre-
incorporation agreement by which the company as incorporated is not bound and therefore was of no consequence.
Pre-Incorporation contracts cont…
 Natal & Colonisation Co Ltd v Pauline Colliery & Development Syndicate Ltd (1904) AC 120, the
Privy Council that there was no contract to which the respondent company was a party,
consequently specific performance could not be decreed
 Masaka Coffee Co v Masaka Farmers & Producers Ltd (1991) ULR 220, that evidence was proved
to show that the company lacked the capacity to conclude an agreement for lease of a coffee
processing factory made five days before its incorporation
 Ngaremtoni Estate Ltd V Commissioner of Income Tax (1969) 1 ARL 186, that a promoter had no
right to indemnity from a company which he promoted in respect of an obligation undertaken on
its behalf before its incorporation and he could not sue it upon contract made by him with an agent
or trustee on its behalf before its incorporation, even where the articles of association provide that
the company shall defray the preliminary expenses
Adoption of Pre-incorporation contract S.54(2) (3)
 A company may adopt a pre-incorporation contract with its formation and registration made on its
behalf without a need for novation
 Re House of Garments Ltd v White Cross Companies Cause No2 of 1972 (unreported September
15 1972), Promissory Notes were drawn by the Company’s promoter during incorporation. After
the company paid up on some of them. It was held this conduct amounted to ratification. Read
Newborne v Sensolid Ltd (1953) 1 ALL ER 708
 WEEK 6
 CAT 1
WEEK 7
LIFTING THE VEIL
 S.20 where a company or its directors are involved in acts including tax evasion, fraud, or where
save for a single member company, the membership falls below the statutory minimum, the High
Court may lift the corporate veil
 S.2 lifting the veil means disregarding the corporate personality of a company in order to apportion
liability to a person who carries out any act
Statutory lifting of the veil
 S.20 –number below legal minimum, the High court may lift the veil
 S.117- Company name not mentioned in relevant documents, the officer/director responsible may
lift the corporate veil
 John Wiles (Footwear) Ltd v Lee International (Footwear) Ltd (1985) BCLC 44, Lee International
Footwear ordered several moccasins from the plaintiff on an old order form which gave the
company’s former name. The order director being unaware of the fact that an older form which
gave the company’s former name. The order was signed by one director. The other director being
unaware of the fact that an old order form was being used, was held not to be liable under the
section.
Statutory lifting of veil cont…
 S.157 Holding and subsidiary companies
 Holding and subsidiary companies group accounts should be presented before the holding
company in General meeting as they are regarded as one for accounting purposes
 S.20 reckless or fraudulent trading
 Where a company or its directors are involved in fraud in fraud the court may lift the veil
 S.323 of the Penal Code Act Cap 120; Fraudulent offences by directors and officers of
corporations companies- a director or officer of a corporation or company who participates in
fraud commits a felony and is liable to imprisonment for seven years
 S. 324 of the Penal Code Act , false statements by officials of companies, an officer or auditor of a
company who makes circulates or publishes any written statement or account which in any
material particular is to his/her knowledge false, with intent thereby to defraud commits a felony
and is liable to imprisonment for seven years
Statutory lifting of veil cont…
 Mugenyi & Co Advocates v Attorney General (1997) II KALR 17 (SCCA), in order to lift the veil
of incorporation personality so as to find that there was no company but a government extension,
one must prove fraud on the part of government.
 Wanabe Tamari & Sons Ltd v Green House Ltd (1994) VI KALR 71, the Respondent company
was incorporated well before the suit agreement was executed. Therefore it cannot be said that it
was incorporated for the purpose of defrauding others. Therefore no valid reason had been proved
for purposes of lifting the veil of incorporation of the Respondent company.
 Read Stanbic Bank v Anine & Ors (2012) 2 EA, Stanbic Ltd v Ducat Lubricants Ltd 3 Ors (2013)
Ug Commercial Bank 197
 Re William Leitch Brothers Ltd (1932) 2 Ch 71, if the company continues to carry on business and
to incur debts at a time when there is to be knowledge of the directors, no reasonable prospect of
the creditors ever receiving payment of those debts, it is in general a proper inference that the
company is carrying on business with intent to defraud
 S.175, power of inspectors to investigate related companies
 Where the inspector thinks it necessary to investigate the affairs of any body corporate which or
has been the company’s subsidiary he/she shall have power to do so
Statutory lifting of veil cont…
 S.20, taxation evasion, where a company or its directors are involved in tax evasion, court may lift
the corporate veil
 S.91 of the Income Tax Act 340, a tax avoidance scheme includes any transaction one of the main
purposes of which is the avoidance or reduction of liability to tax
 Read: Inland Revenue Commissioner v Eccentric Club Ltd (1924) 1 KB 414, Littlewoods Mail
order stores Ltd v IRC (1969)1 WLR 1241
 S.108 of the Insolvency Act,2001,pooling of assets of associated companies, S.2 of the Insolvency
Act, definition of lifting of the veil
 S.161(3) of the Insolvency Act 2011, misapplication of funds
Lifting the veil under case law
 Where the company acts as agent of the shareholder
 NEC & 2 Ors v Nile Bank Ltdd (1995) 1 KALR 138, though the subsidiary company is an
independent entity from its parent, the trial Judge was correct in lifting the veil of the subsidiary
NEC Bakery and to find that it was owned and controlled by the first appellant who had majority
shareholding in it hence the 1st Appent was liable on the debenture
 Read: Ishasha Mines Ltd v National Enterprises Corporation (1994) VI KALR
Lifting the veil under case law cont…
 Nsagiranabo v Associated Properties (2008) HCB 142,Jonesv Lipman 91962) 1 ALL ER 442
 Cases of associated companies: Court treat subsidiaries as agents of the holding companies. The veil may be lifted in tax matters ; Harold
Holdsworth & Co (Wakefield) Ltd v Caddies (1955) 1 WLR 352, the Holding company had full control over internal management of its
subsidiary
 The company is deemed a trustee for shareholders, A company holds property in trust from its shareholders The Abbey Malvern Wells Ltd v
Ministry of Local Govt (1951) Ch 728,Littlewoods Stores v IRC (1969) 1 WLR 1241
 Where there has been fraud or improper conduct- Gilford Motor Co v Horne(1933) Ch 935, Jones v Lipman (1962) 1 WLR 832
 Ratifying corporate Acts If the resolutions passed by members without properly convened meeting of the board or members binds the
company -Re George Newman Lts (1895) 1 Ch 674
 Determination of residence, court may look behind the veil of the company and its place of registration in order to determine it residence
mostly : Unit Construction Co Ltd v Bullock (1960) AC 351, Daimler Co Ltd v Continental Tyre & Rubber Co (1916) 2 AC
WEEK 8
Ultra vires doctrine
Modification of constructive notice doctrine
Background
 Previously the capacity of a company was determined by the breath of the company’s objects as expressed under the company’s Memorandum of Association.
 Any acts beyond those objects were ultra vires and void.
 The term ultra vires denotes some act or transaction on the part of a corporation which although unlawful of contrary to public policy if done by an individual
is yet beyond the corporation’s legitimate powers as defined by the statute under which it is formed or the statutes which are applicable to it or by its
Constitution
 Ashbury Railway Carriage & Iron Co v Riche (11875) LR 7 HL 653 –the financing of the concession to build a complete railway system from Antwerp to
Tournai was ultra vires and void because it was not within the objects of the company. The words empowering the company to carry on the business of general
contracting must be construed ejusdem generis with the preceding words and must therefore be restricted to contracting in the field of plant fittings and
machinery only. In other words the company could uses its funds to make things for railways, but not make railways as such.
Background of modification of constructive notice doctrine cont…
 For this reason it became usual to include in the objects clause a large number of objects and
powers so that the company could do a wide variety of things apart from its main business, if at
any time it wished to do so.
 It also became common to insert a paragraph in the objects clause which stated that each clause
states a separate and independent main object which can be carried on separately from the others.
 Cotman v Brougham (1918) AC 514- a paragraph in the objects clause which stated that each
clause contains a separate and independent main object which can be carried on separately from
others was legal so that for example a company whose main object was publishing could use a
clause giving investment powers for any kind of investment and not just investment in publishing
Amendments to the ultra vires doctrine
 However under the new Companies Act, 2012, the doctrine of ultra vires was relaxed under the
following provisions;
 S.7(5) (b) Reasonably incidental clause
 The company has the power to do all such things as are incidental or conclusive to the carrying on
of any trade or business by it
Reasonably incidental clause cont…
 AG V Eastern Railways Company (1880) 5 AC 473 – a company is allowed to do things
reasonably incidental to its stated objects. It not not necessary for a company to write down in its
Memorandum of Association everything that it would or could do in the course of its business
because whatever may fairly be regarded as incidental to or consequential upon those things which
have been stated in the Memorandum ought not and would not be held by the courts to be ultra
vires.
 The courts would regard such things as impliedly within the company powers unless they are
expressly prohibited by the Memorandum
 Deuchar v Gas Eastern Railways Company (1880) 5 AC 473 – the company formed to make gas
from coal could manufacture caustic soda so as to be able to convert one of its by products from its
gas making activity into a substance which could then be sold to dyestuff manufacturers.
 Johns v Balfour (1889) 5 TLR 389- the court accepted that the purchase of an estate of 17,000
hectres by a mining company which was intra vires as it would enable the company to continue to
mine the land of which it had previously been a tenant.
 Evans v Brunner, Mond & Co Ltd (1921) 1 Ch 359- donations to universities and scientific
institutions for the furtherance of scientific education and research were held to be intra vires
because they were incidental to the company’s object of chemical manufacturing
Nullification of memorandum’s limitations
 S.51 (1) a company’s capacity not limited by its Memorandum
 The validity of an act done by a company shall not be called into question on the ground of lack of
capacity by reason of anything contained in the company’s Memorandum
 S.52 (1) power of directors to bind the company
 The power of the board of directors to bind the company or authorise others to do so in favour of a
person dealing with the company in good faith shall not be limited by the company’s
Memorandum
 The wording of S.51(1) is not completely free from ambiguity and could be interpreted in a way
that would negate its obvious intention e.g by holding that an act done by the directors in breach of
their duties or of the company’s Regulations can not be regarded as an act done by the company.
 Thus if a contract is found to involve payment of an illegal dividend or an illegal repayment of
capital a 3rd party cannot use the section to overcome consequences of the illegality
However internal application of the ultra vires rule still stands
 S.51(2) Internal application of the ultra vires rule
 A member of a company may bring proceedings to restrain it doing of an act which but for
subsection (1) would be beyond the company’s capacity unless the act is to be done in fulfilment
of a legal obligation arising from a previous act
 This preserves the right of the individual shareholder to restrain the commission by the company
of ultra vires acts
 S.51(3) Directors powers are limited by the Memorandum
 The directors shall observe any limitations on their powers contained in the company’s
Memorandum and any action by the directors which but under subsection (1) would be beyond
the company’s capacity may only be ratified by the company by Special Resolution
WEEK 9
MANAGEMENT OF COMPANIES
Shareholders rights, Meetings Resolutions, Notices, Quorum, Procedures for voting Meetings
Shareholders statutory rights
 S.10 (2) (a) right to object to a proposed alteration of the company’s object
 S.32(1) rights of holders of special classes to apply to cancel variation
 S.99(1) rights of shareholders to inspect the register of debenture holders
 S.114(1) right to inspect company’s register of charges
 S.122 (1) Inspection of the register and index
 S.139 convening of an extra ordinary general meeting on requisition
 S.139(3) right to convene a meeting is directors fail
 S.143(1) right to appoint proxies
 S.16691) right to receive a balance sheet
 S.247(1) right to apply for a court order in cases of oppression
Company meetings
 S.138, Annual General Meeting for a public company once a year and not 15 months shall lapse
between one AGM and the next. If a company holds its first AGM within 18 months of
incorporation, it need not hold it in the year of its incorporation
 Re El Sombrero Ltd (1958) 3 ALL ER 1, the AGM must be called whether or not the annual
accounts are ready for consideration at the meeting
 Table A, Article 47 AGM for Private meetings
 Gibson v Barton 91875) LR 10 QB 329, the word year in the Articles means calendar year, that is
the period of January to December
 S.138 (4), default in holding an AGM, BDC Online v Lynn Kategaya HCCS 18/2005, a single
member cannot generally constitute a meeting save as may be directed by the Registrar in
accordance with S.13494) or orders by court under S.142 of the Companies Act
Business at AGM
 S.147(8)business at AGM is dealt with on Notice
 S.167 (1) appointment and remuneration of External Auditors
 S.215(9) Register of Directors shareholding and related particulars
Company meetings cont…
 Table A, Article 48-Extraordinary General meeting, all meetings of the company other than an AGM are Extraordinary meetings
 Table A Article 49, convening an extraordinary meeting
 Re State of Wyoming Syndicate (1901) 2 Ch 431, the Company Secretary or other Executive has no power to call general meetings unless the board ratifies his
act of doing so
 Read: Smith Paringa Mines Ltd (1906) 2 Ch 193
 S.139(1) convening an Extraordinary meeting on requisition of Members
 Bugerere Coffee Growers Ltd v Sebaduka & Anor (1970) 1 EA 147, since the meeting was properly constituted hence capable of passing a resolution removing
directors
 Anthony Wagaba & Ors v Michalel Matovu 7 Ors (1973) HCB 110, the company meeting was convened without authority of directors and without requisitions
per the Articles of Association or Companies Act thereby rendering the business transacted unlawful
 S.139(2) form of requisition which must state the objects of the meeting and must be signed by requisitionists and deposited at the registered office and may
consist of several documents in like form each signed by one or more requisitionist. Read Bugerere Coffee Growers Ltd v Sebaduka & Anor (1970) 1 EA 147
Class meetings
 Table A, Article 4, Class meetings
 Carruth v ICI Ltd (1937) 2 ALL ER 423, there was no irregularity of procedure in conducting a
class meeting in the presence of non members of the class. A class meeting is one at which only
members of a particular class vote. It does not matter that others who are not members of the class
are present.
Court ordered meetings
 S.142, power of court to order a meeting. Procedure is under Order 38,Rule 6(h) by Originating
summons
 In the Matter of Air Rep International Ltd (984) HCB 63, the Companies gives power to t he court
to order for a meeting of a company where it is not practicable to call for a meeting in any way and
this case fell within the provisions of that section.
 Read: Hussein Jivraj v Ranchers Ltd HCCS No.27 of 2009, Mbarara Community Hospital Ltd v
Karema (2014) UGHC 44, Re El Sombrero Ltd (1958) 3 ALL ER 1
Notice of Meeting
 S.140 (2), form of notice must be in writing
 Table A ,Article 50, notice of General meeting to specify the place, the day and the hour of meeting
and general nature of the business to be transacted
Notice of meeting cont...
 Read: McConnell v Prill (1916) 2 Ch 57, Baillie v Oriental Telephone and Electric Co Ltd (1915)
1 Ch 503, Boschoek Railway Co Ltd v Fuke (1906) 1 Ch 148
 Notice must comply with the Articles- Alexander v Simpson (1889) 43 Ch D 139
 S. 148(1) Notice of Special Resolution specifying the intention to propose the resolution as a
special resolution must be duly given
 Re Moorgate Mercantile Holldings Ltd (1980) 1 ALL ER 40, a notice of intention to propose a
special resolution was valid for only if it identified the intended resolution by specifying either the
text or the entire substance of the resolution which it was intended to propose
 Table A Article 134, persons entitled to Notice
 Table A Article 132, Notice to Joint holders
 Table A 133, Notice to Representatives
 If Notice is not given to every person entitled to notice, any resolution passed at th meeting will be
of no effect at all
 Nampera Trading Company v Yusufu ssemwanje & Anor (11974) HCB 212
 Young v Ladies Imperial Club (1920) 2KB 523, Seremba Mark v Insanga Samuel & Ors,
Companies Cause No 24 of 2005
Quorum
 S.141( c)- in so far as the Articles of the company do not make other provision for the purpose in
the case of a private company, two members and in the case of any other company three members
personally present shall form quorum
 Table A Article 53, no business to be transacted without quorum
 Meeting can not be construed as one person except as provided by the Companies Act- Sharp v
Dawes (1876) 2 QBD 26
 Read Re London Flats Ltd (1969) 2 ALL ER 744
 A meeting may be validly held even though not everyone is in the same room e.g where members
are using audio visual equipment in overflow rooms
 Byng v London life Association Ltd (1990) 1 Ch 170- it is possible to have a valid meeting even if
all the members attending are not physically in the same room, if they are connected by audio
visual equipment as long as this equipment is sufficient to allow them to debate and vote on
matters of the company. The members would be electronically in each other’s presence so as to
hear and be heard and to see and be seen.
Quorum cont…
 A problem arises where the meeting is quorate at the outset but subsequently a member or members leave reducing the number present below the minimum required for quorum
 Re Hartley Baird Ltd (1955) Ch 143, the quorum set by the company’s Articles was 10 and the meeting began with that number of members present. One member left but despite this it was held
that the departure of the member did not invalidate the proceedings carried on after his departure
 Read Seremba Mark v Isanga Emmanuel Companies Cause No.24 of 2005

Resolutions
Ordinary Resolution
 The ordinary resolution is not defined by the Act and does not have any notice or majority requirements.
 It can be passed by a bare majority of votes at a meeting

Special Resolution
 S.148 a resolution is Special if passed by majority of not less than three fourths of members at a general meeting of which notice specifying the intention to propose the resolution as a special
resolution has been duly given
 It is passed by a majority of not less than three quarters of such members as are entitled to and vote in person or where proxies are allowed by proxy at a general meeting of which notice specifying
the intention to propose the resolution as a special resolution has been duly given
Special Resolution cont…
 S.150-Registration of special resolution within thirty days after passing of the resolution.
 Failure to register within thirty days attracts a fine of five currency points
 S.275- filing a special resolution out of time- upon payment of an additional fee, the Registrar shall register the same
 Amendment of a special resolution is permitted if it is to correct a typographical error or if the substantive object of the Special Resolution is unchanged
 Re Uniq Plc (2011) EWCH 749 Ch, there was a numerical error in the text of a special resolution set out in the notice circulated to the shoreholders. Held : Although there is no
scope for amending a special resolution, if it is clear from the text of the resolution when read with the text f the accompanying circular that an error has been made, then the
resolution can be read as a matter of construction as if the error had not been made
Extraordinary Resolution
 The Companies Act has done away with Extraordinary resolutions- S.298(8)

Voting
 S.141 (e) voting in a company with share capital, every member shall have one vote in respect of each share
 Table A 62, Members vote by show of hands by every member present and on poll every member shall have one vote of each share of which he or she is holder
Voting cont…
Table A Article 63, votes for Joint Holders,
 The vote of the Senior who tenders a vote shall be accepted to the exclusion of the votes of the
other joint holders, seniority shall be determined by the order in which the names stand in the
register
Table A Article 64, persons of unsound mind
 A member of unsound mind in respect of whose estate a manager has been appointed may vote by
his manager
Table A Article 65, voting on payment for shares
 No member shall be entitled to vote at any general meeting unless or other sums presently payable
by her in respect of shares in the company have been paid
 Carrath v ICI Ltd (1937) AC 707, the Shareholder’s vote is a right of property and prima facie may
be exercised by a shareholder as she thinks fit in her own interest
 Pender v Lushington (1877) 6 Ch 70, member’s right to vote may be interfered with because it is
right of property. Any interference leads to a personal right of the member to sue in his own name
to enforce his right.
 Table A Article 58, mode of voting
 Holmes 7 Anor v Keyes & Ors (1958) 2 All ER 129-on the true construction of Article 65
(equivalent to Article 58) a poll could validly be demanded before a show of hands.
Voting cont…
 Re Horbury Bridge Coal Co. (1879) 11 Ch D 109, when voting is by show of hands, the number of
shares held by each voting member was irrelevant
 S144, Right to demand a poll
 Unless the Articles provide otherwise, voting is in the first instance on a show of hands with one
vote per person irrespective of shares held. This is because it is speedy and simple enabling the
company to take uncontroversial decisions quickly.
 The alternative voting mechanism is that of the poll in which members and proxies vote the shares
which they represent though a person is not obliged to vote on all the shares represented or to vote
them all the same way
 Campbell v Mound (1835-42) All ER 648, a member who was not present at the meeting when
the poll was ordered to be taken may vote personally on the poll
 S.143 Proxies, a member entitled to vote at meeting is entitled to appoint another person whether a
member or not as her proxy to attend and vote instead of her and the proxy in private company
shall also have the same right as a member to speak at the meeting
 Table A Article69,-deposit proxy instrument at registered office
 S.144(2) proxy can demand poll
 Table A Article 72 proxy can demand a pol, Table A Art 67, proxy can vote on poll
Week 10
Officers of the company
Appointment of Directors
Appointment of First Directors
 Table A Article 75-First directors-signatories to the Memorandum of Association shall be the first
directors
 S.91 (a) consent to act as director (Public Company)
 Table A, Article 89, subsequent directors by rotation at the 1 st Annual General meeting
 Table A Article 90 &91, retiring directors- longest serving directors shall retire and shall be eligible
for re-election
 Table A Article 94, appointment of subsequent directors by General meeting, the company by
ordinary resolution increase or reduce the number of directors and may also determine by what
rotation the increased or reduced number is to go out to office.
 Kintu v Kyotera Coffee Growers , directors are appointed by shareholders and members of the
company. They do not have to be confirmed by the Registrar of Companies who has no such
powers
 S.192 (1) restrictions on appointment of a director by a Public company
Appointment of Directors cont…
 S.196, minimum age is 18 years
Types of directors
 S.2 Shadow director
 Secretary of State for Trade and Industry v Deverell & Anor (2000) 2 All ER 365, the term should
not be narrowly construed. The giving of non professional advice could result in a shadow director.
The concepts of “ direction” and instruction” also included advice as the common feature these
terms all share is guidance. It is sufficient to show directors had subordinated themselves or
surrendered their discretion in the face of guidance from the shadow director
De facto Director
 S.191, validity of acts of directors and managers
 Table A Article 105, validity of acts done by directors shall not withstanding any defective
appointment discovered afterwards.
 R v Ivan Arthur Camps (1962) I EA 403, The Respondent was duly and validly appointed a de
jure director but he ceased to be a de jure director two months later as he failed to acquire his share
qualification within that time. He continued acting as director afterwards and this made him a de
fecto director. Both de jure and de fecto directors are directors under the Companies Act.
 Read: Morris v Kanssen & Ors (1946) 1 ALL ER 586
Alternate Director
 S.186, Nominee director of a single member company
Corporate Director
 Holding companies usually appoint themselves directors of their subsidiary companies with a view
to securing and maintaining complete control of the subsidiaries
 Re Bulawayo Market & Offices Co Ltd (1907) 2 Ch 458, a company can be appointed as a director
 S.188(b) prohibition of certain persons being sole director or secretary
Nominee Director
 S.186, Nominee Director
Managing Director
 Table A Article 107, power to appoint Managing Director
 Table A Article 109, powers of Managing Director
Powers of Directors
 Table A Article 80, directors powers to manage of the company
 Directors and no one else are responsible for the management of the company.
Powers of Directors cont…
 The members cannot by ordinary resolution supercede the directors powers or instruct then how they shall exercise their powers unless the Articles or Act
provides as such
Shareholders v Directors
 Management matters not specifically not specifically reserved to the general meeting are in the absolute control of the directors.
 The shareholders even if unanimous cannot overrule the directors or interfere in their conduct of the affairs of the company, no matter how important those
management matters may be.
 The shareholders can still alter the Articles to grant them powers against the directors
 In the alternative, the shareholders can vote to remove the directors
 Automatic Self Cleansing Filter Syndicate Ltd ve Cunninghame 91902) 2 Ch 34 , if is desired to alter the powers of the directors that must be done, not by
resolution carried by a majority at an ordinary meeting but by an extra ordinary resolution
 Gramaphone & Typewriter Ltd v Stanley (1908) 2 KB 89,even a resolution of a numerical majority at a general meting of the company cannot impose its
will upon then directors when the articles have confined to them the control of the company’s affairs.
Shareholders v Directors cont…
 Read: QUIN & Axtens Ltd v Salmon (1909) AC 442, John Shaw & Sons (Salford) Ltd v Shaw
(1935) 2 KB 113, Scott v Scott (1943) 1 All ER 582
Powers of directors
 Table A Article 107, power to appoint managing director
 Peter Ellis Bailey & Co East Africa Ltd (1962) 1EA 626
Institute an action in the company’s name
 Radia v Kakkybhai & Co Ltd (1995) 1 KALR 87, Contraction Engineers & Builders Ltd v The
New Vision (1994) II KALR 37
 United Assurance Co Ltd v Attorney General (1995) VI KALR 37
Bind the company as agents
 S.52 power of directors to bind the company
 Emco Plastica International LTD V Freeerne (1971) EA 432
 Tatu Naiga & Co Emporium v Verjee Brothers Ltd SCCA 8 of 2000
Powers of directors cont…
Execution of documents
S.55 ,a document executed by a director and secretary or by 2 directors and expressed to be executed by the company has the same effect as if executed under the company’s seal
 Read Kintu v Kyotera Coffee Growers Ltd (1976) HCB 362
 Power to Appoint Agents, Table A Article 81 by power of Attorney
 S.57, execution of deeds abroad
 Bank f Uganda v banco Arabe Espanol (2002) 2 EA 333

Borrowing Powers
 Table A Article 79(1) Directors Borrowing Powers
 Photo focus Ltd v Mulenga Joseph (1996) IV KALR 102, a director has powers to borrow money in the name of the company where the Articles do not prohibit the transaction. The loan acquired by the director in the
name of the company was binding on the company and the company was liable to repay it
Power to Authenticate documents
 S.59 a document authenticated by a director or secretary or other authorised officer of the company and need not be under its common seal

Power to call company meetings

 Table A Article 98, summoning a Board meeting
 Table A Article 49, convening an Extraordinary General meeting
Power to call company meetings cont…
 Re State of Wyoming Sydicate (1901) 2 2 Ch 31, the company secretary or other executive has no power to call general meetings unless the board ratifies her act of doing so
Powers to use the official seal
 Table A Article 82, directors have power to use official seal- S.58
 Read: Kintu v Kyotera Coffe Growers Ltd, Coffee Marketing Board v Kigezi Growers Coop Union (1995) V KALR 25
Statutory duties of directors
 Fiduciary duties of directors are owed to the company as an entity not to individual members
S.198(a), duty to promote business
 Scottish Cooperative Wholesale Society Ltd v Meyer (1959) AC 324, the duty of directors was to do their best to promote its business and to act with complete good faith towards it
S.198 (b) duty of care and skill
 Read: Lagunas Nitrate Co v Lagunas Nitrate Sydicate Ltd (1899) 2 Ch 392
 Re City Equitable Fire Insurance Co (1925) Ch 407
 A director need not exhibit a greater degree of skill than may reasonably be expected from a person of his knowledge and experience
Duty of care and skill cont…
 A director is not bound to give continuous attention to the affairs of his company
 A director in the absence of grounds for suspicion, justified in trusting that official to perform such
duties honestly
 Read: Brazilian Rubber Plantations and Estates Ltd (1911) 1 Ch 425, Dovey v Cory (1901) AC
477
S.198( c), Duty to act in the interests of the company
 Read: Sidebottom v Kershaw, Leese & Co (1920) 1 Ch 154
 Re Lee Behrens & Co Ltd 91932) 2 Ch 46 the test of whether an act of the director was bona fide
in the best interests of the company
a) Is the transaction reasonably incidental to the carrying on of the company’s business
b) Is it a bona fide transaction
c) Is it done for the benefit and to promote the prosperity the company
S.198 ( c) (i) Treat shareholders equally
Read Scottish Cooperative Wholesale Society Ltd v Meyer, Alexander v Automatic Telephone
Company (1990) 2 Ch 56
Statutory duties of directors cont…
 S.198 (c) (ii) Avoid conflict of interest
 Boardman v Phipps (1967) 2 AC 46, the test was to ask whether a reasonable man would think
there was a real possibility of conflict
 Table A, Article 84(1) declaration of interest
 S.218 disclosure by directors of interests in contracts
 S.255, duty of director to disclose shareholdings in own company
S.198 (c) (iv) duty not to make personal benefits
 Boardman v Phipps (1966) 3 ALL ER 72, directors had to account to the beneficiaries for the
profits they had made on the shares,
 Read: Industrial Development Consultants v Cooley (1972) 2 ALL ER 162, Cooks v Deeks (1916)
1 AC
Directors remuneration, Table A Article 76
 George Newman & Company (1895) 1 Ch 674, directors have no right to be paid for their services
and cannot pay themselves or each other, or make presents to themselves out of the company’s
assets unless authroised to do so by the instrument which regulates the company or by
shareholders at a properly convened meeting
 Read Clark v Cutland 92003) 4 ALL ER 733
Disqualification of directors
 S.199 a director may be disqualified for three years if she fails to:
a) Keep proper accounting records
b) Prepare and file accounts
c) Send returns to registrar
d) File tax returns and pay tax
e) Allows a company to trade insolvent
 Table A Article 88, disqualification of directors may be due to:
a) Ceases to be director by virtue of S.193
b) Becomes bankrupt or makes any arrangement or composition with her creditors
c) Becomes prohibited by virtue of S.189
d) Becomes of unsound mind
e) Resigns her office by notice in writing to the company
f) Absent for more than 6 months without permission of the directors from meetings of the
directors during that period
 Re Arctic Engineering Ltd (1986) 1 WLRS 686, failure to send 35 required returns to the Registrar
was sufficient evidence of disqualification
The Company Secretary
 S.187, sole director shall not also be secretary, single member company is not obliged to have a
secretary
 Table A Article 110, Appointment of Secretary
 S.190 Qualifications of company secretaries
a) An Advocate of the High Court
b) Capable of discharging those functions( subjective test)
c) Member of ICPA or ICSA
 Secretary has no power to bind the company, celadon Trust Ltd (1939) Ch 286, Re Haycraft Gold
Reduction Co (1900) 2 Ch 250
 Secretary id the Chief Administrative Officer of the Company- KA Krishna v Indo Union
Assurance Co Ltd (1944) 14 Comp Case 10
Appointment of Auditors
 S.167 every company shall at each AGM appoint an Auditor to hold office from the conclusion of
that AGM until conclusion of the next AGM
 S.167 (2) – (11) appointment of subsequent Auditors
 Table A Article, appointment of Auditors
Duties of Auditors
 To audit the accounts of the company
 Report to the members of the company on the accounts
 Re London and General Bank (1895) 2 Ch 166, the Auditor had a duty to shareholders to report
any dishonest acts that had occurred. The Auditor could not expect to find every error but had
duty to use due care and skill
 Read: Hedley Byrne & Co v Heller & Partners (1963) 2 ALL ER 575,
 Not under duty to take stock and can accept as honest any statements made by the company’s
officers and servants so long as she acts reasonably in so doing and the circumstances are not
suspicious.
 She must act as reasonably careful as any competent Auditor would
 Fomenta (Sterling Area) Ltd v Selsdon Fountain Co Ltd (1958) 1 WLR 45, an Auditors task is to
take care to see that errors are not made and check than no errors were made
 Read Re Thomas Gerraard & Son Ltd (1968) Ch 455
 S.164, accounts and Auditors report to be annexed to the balance sheet
 S.165, directors report to be attached to the balance sheet
 S.166 right to receive copies of balance sheet and Auditors report
 S.170 Auditors report
WEEK 11
THE INDOOR MANAGEMENT RULE
 S.52, power of directors to bind the company
 The main effect of this section is to negate the impact of the doctrine of deemed notice and replace
it with the presumption that the directors have unlimited power to make contracts
 It does however confer unlimited authority on the directors nor does it entitle the 3 rd parties to rely
on their unlimited actual authority in all circumstances.
 The 3rd party must deal with the company in good faith.
 Bad faith entails something more than knowledge of the director’s lack of authority even where the
3rd Party’s knowledge is actual rather than constructive
 If a 3rd party knows that directors lack authority, it is hard for her to claim to be acting in good
faith.
 S.53 no duty to enquire as to capacity of a company or authority of directors
 Under this provision a transaction may be effected by some internal procedure and such a person
dealing with the company may assume that the procedure has been duly complied with. The effect
of this is that the company will be bound even if the procedure was in fact not followed.
 This in essence protects 3rd parties dealing or transacting with companies
Indoor Management Rule cont…
 Royal British Bank v Turquand (1856) 6 B&B
 Claimant bank lent Pound Sterling 2000 to a joint stock company called Cameron & Railway
Company which was at the time of the action in course of winding up. Turquand was the General
Manager of the company and was brought into action to represent it. The company had issued a
bond under its common seal, signed by two directors agreeing to repay the loan. The registered
deed of settlement of the company provided that the directors might borrow on bond such sums as
they should be authorised by a general resolution of the members of the company to borrow. In
the case of this loan it appeared that no such resolution had been passed. It was held that the bond
was nevertheless binding on the company because the lenders were entitled to assume that a
resolution authorising the borrowing had been passed. There was no need to go indoors for the
management to make active enquiries
 Banax Ltd v Gold Trust Bank (199) IIIKALR 54- once the resolution to change directors was
registered by the Registrar of Companies, the Bank was under an obligation to accept it. The
reorganisation of the company was an internal matter and the respondent bank should only have
looked at the resolution which had been duly registered with the Registrar of Companies.
Therefore the bank would not be said to have had notice of something irregular and was thereby in
breach of contract to freeze the appellant’s account.
Indoor Management Rule cont…
 Eriya Milling Protect Ltdv Wade Adams Construction Ltd (1992) 1 KALR 191, that the alleged
agent of the defendant company could not have either actual or ostensible authority of the
company to bind it because the defendant company had never introduced the alleged agent to the
plaintiff as holding the said position. Therefore the question of estoppel did not arise
 Read: Bananahill Investment Ltd v Panafrican bank Ltd & Ors (1986-1989) 1EA, NIS Protection
Ltd v Nkumba University HCCS – 604/2004
 S.52 operates to override only provisions in the company’s constitution which are limitations on
the power of the board to bind the company. Not all provisions which govern how the board will
act will necessarily fall within this concept.
 Although this section has been viewed as essentially an outsider’s protection as where a creditor
relies on the section to validate a contract, it has also been to apply to shareholders in regard to a
disputed issue of bonus shares
 Read EIC Services Ltd v Phipps (2003) ALL ER 804
 Under S.52, the power of the board of directors is to bind the company in favour of a person
dealing with the company in good faith. A person shall be presumed to have acted in good faith
unless the contrary is proved
 Read International Sales & Agencies Ltd v Marcus (1982) 3 ALL ER 551
Exceptions to the Indoor Management Rule
Where the outsider knows of the irregularity of lack of actual authority or is in fact an insider with
knowledge
 S. 222(1) & (2) invalidity of certain transactions involving directors and related particulars
 This applies to a transaction if or to the extent that its validity depends on S.52 and provides that
where the party to a transaction with a company is an insider, the under subsection (1)(a) and (b)
then the protection afforded by that S.52 will not apply.
 Instead the transaction will be voidable at the instance of the company. This section effectively
overrides S.52 for 3rd parties who are either directors or closely connected to them and renders the
transaction voidable at the instance of the company.
 S.222(3) (4) (6) (7) liabilities of parties to the transaction
 Irrespective of whether the transaction is avoided, the insider and any director who authorised the
transaction is liable to account to the company for any gain she has made as a result of the
transaction and to indemnify the company for any loss that the company has incurred (sub section
3)
 However where the insider is not a director of a company, it may be possible for him to avoid
liability if she can show that at eh time of the transaction with the company she was unaware that
the directors were exceeding their powers (sub section 5), Read: Howard v Patent Ivory
Manufacturing Co (1888) 38 Ch D 459
Exceptions to the Indoor Management Rule cont…
 Where there were suspicious circumstances putting the outsider on inquiry
 Morjaria v Kenya Batteries (1981) Ltd & Ors (2002) 2 EA 479, the 3 rd party is entitled to assume
that the company has complied with its internal rules and regulations unless he has had actual
knowledge of them or there are suspicious circumstances putting him on inquiry
 Read: Underwood Ltd v Bank of Liverpool & Marins (1924) 1 KB 775, Kreditbank Cassel V
Schenkers Ltd (1927) 1 KB 826
The 3rd party with actual or constructive notice due to public registration of documents can not claim
good faith
 S.264 (1) (a) inspection, production and evidence of documents kept by the Registrar may be
inspected any person upon payment of prescribed fee
 A person shall not be taken to have notice of any matter merely because of its being disclosed in
any document kept by the Registrar of Companies and thus available for inspection or made
available by the company for inspection
 However S.53 abolishes another kind of constructive notice since a 3 rd party is not bound to
enquire whether it is permitted by the Memorandum or as to any limitation on the powers of the
board of directors to bind the company or authorise others to do so. Read: Rolled Steel products
(Holdings) Ltd v British Steel Corp (1985) Ch 246
Exceptions to the Indoor Management Rule cont…
 Where a document is forged so as to purport to be the Company’s document
unless perhaps it is held out as genuine by an officer of the company acting
within the scope of his authority
 Ruben v Great Fingull Consolidated (1906) AC 439, the forged certificate is
a pure nullity. It is quite true that persons dealing with limited liability
companies are not bound to inquire into their indoor management and will not
be affected by irregularities of which they had no notice. But this doctrine
which is well established applies only to irregularities that might otherwise
affect a genuine transaction. It cannot apply to a forgery
WEEK 12
MAJORITY RULE AND MINORITY PROTECTION
 The default rule long established in English company law, is that the majority in the company
determine what the company will do
 Attorney General v Davy (1741) 26 ER 531, two of the three chose a chaplain with the majority of
residents consent but the third dissented. The question was whether the choice was valid. It was
held the Chaplain was validly elected, for a corporate body and act by a majority vote at any duly
summoned meeting of members. The default rule is that a majority of a corporate body can
determine what it does.
 However there will be times when the minority unable to control the respective vote is not content
to accept the majority position.
 As such the question arises as to the proper circumstances in which that minority should be able to
challenge the position of the majority, reflected as the decision of the company in the courts
The Rule in Foss v Harbottle (1843) 67 ER 189
 The proper plaintiff in an action to redress an alleged wrong to a company on the part of anyone, whether director, member or outsider or to
recover money or damages alleged to be due to it is prima facie the company
 Where the alleged wrong is any irregularity which might be made binding on the company by a simple majority of members, no individual
member can bring an action in respect of it
 This means that the company is normally the proper plaintiff in an action to enforce a duty owed to the company by directors or controlling
members and where the breach of duty can be condoned by an ordinary resolution of the members in a general meeting, no individual member
or minority of members may sue
 Musa Misanga v Eria Mustigire & Ors (1966) 1 EA, in order to redress a wrong done to the company or to recover moneys or damages alleged
to be due to a company action should prima facie be brought by the company itself
 Read: Pavlides v Jensen (1956) Ch 565, Hey v Dupont (1964) 2 ALL ER 273

The rule rests on five related propositions

1. The right of the majority to bar a minority action whenever they might lawfully ratify the alleged misconduct.
 This is the principle of majority rule or internal management rule
Propositions of the rule cont…
 MacDougall v Gardiner (1875) 1 Ch D 13, held that action could not be brought by a shareholder if the chairman was wrong, the company alone could sue. It was an
internal matter for the decision of the majority and not a matter for litigation
 If something has been done irregularly which the majority are entitled to do regularly or if something is done illegally which the majority of the company are entitled
to do legally, there can be no use having litigation about it, the ultimate end of which is that a meeting is called and them ultimately the majority gets its wishes
 It is futile to allow the minority to sue where the majority have retrospective power by ratifying what has been done, to nullify any decision that a court may give in
favour of the minority
 Read: Prudential Assurance Co Ltd v Newman Industries (1982) 1 ALL ER 354

2. The normally exclusive right of the company to sue upon a corporate cause of action- the principle of proper plaintiff or corporate plaintiff
 Barland v Earle (1902) AC 83, in order to redress a wrong done to the company or to recover moneys or damages alleged to be due to the company, the action should
prima facie be brought by the company itself
 Read: Allied Bank International Ltd v Sadra Kara & Abdul Kara HCCS 191 2002
Propositions to the rule cont…
3. The company is a legal person
 The court has from time to tiem asserted that since a company is a persona at law, the action is
vested in it and cannot be brought by a single member. Corporate personality principle
 Mozley v Alston (1847) ER 833- two shareholders sought an injunction to restrain the board from
acting until four of the directors who ought to have retired by rotation to allow for others to be
elected did so. They claimed the majority of the shareholders supported the action. It was held
that if it was supported by a majority then the company itself would bring the suit not individual
shareholders
4. The prevention of a multiplicity of actions. This situation could occur if each individual member
was allowed to commence an action in respect of a wrong done to the company
 Gray v Lewis (1873) 8 Ch App 1035
5. Court’s order may be ineffective. It should be noted that the court could be overruled by an
ordinary resolution of members in a subsequent general meeting provided that the general meeting is
not controlled by the wrongdoers
Exceptions to the Rule in Foss v Harbottle
1. S.51(2) proceedings on ultra vires action, a member of a company may bring proceedings to restrain
the doing of an ultra vires unless the act is to be done in fulfilment of a legal obligation
 Edwards v Halliwell (1950) 2 ALL ER 1064, Barland v Earle (1902) AC 83, Smith v Craft (1988)
Ch 114, Murri v Murri & Anor (1999) 1 EA 212
2. Actions requiring a special majority, where the procedure calls for majority under the Articles and it
is ignored or waived, the minority shareholder may complain to the courts
 Musa Misango v Eria Musigire & Ors (1966) 1 EA 390
 Baillie v Oriental Telephone & Electric Co Ltd (1915) 1 Ch 503, Edwards v Halliwell (1950) 2 All
ER 1064
3. Where there is fraud on the minority
 Estmanco Ltd v Greater London Council (1982) 1 ALL ER 437 fraud means not just fraud at
common law but also fraud in the wider equitable sense of that term as in the equitable concept of
fraud on a power. Fraud on power means an abuse or misuse of power
 Read Daniels v Daniels (1978) Ch 406, Jamal & Ors v Uganda Oxygen Ltd & Ors SCCA 64/1995
Exceptions to the Rule in Foss v Harbottle cont…
Invasion of individual rights
 Such rights include right to vote, inspect the company’s records, receive proper notice of meetings,
use of proxies e.t.c
 Members have rights to enforce such statutory rights
 Pulbrook v Richmond Consolidated Mining Co (1878) 9 Ch D 610, Pender v Lushington (1877) 6
Ch D 70, Henderson v Bank of Australia (1890) 45 Ch 330, Wood v Odessa Waterworks
 Prudential Assurance Co Ltd v Newman Industries (1982) 1 ALL ER 354, a shareholder does not
suffer any breach of his personal rights when the company’s profits diminish because of a wrong
done to the company
5. Any other case where the interests of justice require that the general rule be disregarded
 Joel Odong Amen & Nor v Dr Ocero Andrew & Anor HCCS 602 OF 2004, Justice demands that
where the minorities rights cannot be enforced by an action because of the majorities making it
impossible for the company to the institute a suit then a shareholder can himself file the suit if she
can bring himself within the ambit of the exceptions to the Foss v Harbottle
Forms of Action
1. A personal and representative Action
 This is where an individual member sues not in the right of the company but in his own right to
protect her individual rights as a member, she can bring an action in her own name and may sue on
behalf of herself and other members. Instances in which an individual member can sue in his own
name include;
a) When the company is acting illegally or ultra vires
b) Where a special majority is required and has not been obtained
Edwards v Halliwell, when a remedy is sought by an individual, complaining of a particular act in
breach of her rights and inflicting particular damage on her, the principle of Foss v Harbottle does not
apply either by way of barring the remedy or supporting the objection that the action is wrongly
constituted because the company is not a claimant. Their rights had been violated
2. Derivative Action
 Jamal & Ors Uganda Oxygen Ltd 7 Ors SCCA 64/1995,
Derivative Action cont…
 A derivative action is a suit by a shareholder to enforce a corporate cause of action.
 An action is derivative when the action is based upon a primary right of the corporation but is
asserted on its behalf by the shareholder because of the corporation’s failure deliberately or
otherwise, to act upon the primary right.
 Read: Musa Misango v Eria Musigire 7 Ors, Joel Odong Amen & Anor v Dr Ocero & Anor
 A company can be made to pay plaintiff’s costs in derivative action
 Moir v Wallersteiner (1975) 1 ALL ER 849, court in a minority shareholder’s action ordered the
company to indemnify the plaintiff against the costs incurred in the action
 Derivative and personal actions can be joined where one set of facts may support both a personal
and derivative action.
S.247, winding up in cases of oppression
 Re Stewarts (Brixton) Ltd (1985) BCBLC 4, the conditions which must be met before relief under
S.247 can be granted by court are:
a) The oppression complained of must be complained of by a member of the company
b) The complaint related to the way in which the affairs of the company had been conducted
c) The conduct was oppressive to some part of the members including himself
d) The oppressive conduct existed at the time the petition was presented and continued at the time
of the hearing
 Read: Re H & Harmer Ltd (1958) 3 ALL ER 689, Re Nakivubo Chemists Ltd Companies Cause
No.1 of 1976, Irene Kulabako v Morings Ltd & Ors High Court, Companies Cause No 21 of 2009,
In the matter of Allied Food Products Ltd (1978) HCB 294, Scottish Co-perative Wholesale
Society Ltd v Meyer 91959) AC 324