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Establishing a business in Uganda

Establishing a business in Uganda

A Q&A guide to establishing a business in Uganda.

This Q&A gives an overview of the key issues in establishing a business in Uganda, including an introduction to the legal system; the available business vehicles and their applicable formalities; corporate governance structures and requirements; foreign investment incentives and restrictions; currency regulations; and tax and employment issues.

To compare answers across multiple jurisdictions, visit the Establishing a business in... Country Q&A Tool.

This article is part of the global guide to establishing a business worldwide. For a full list of contents, please visit www.practicallaw.com/ebi-guide.

Legal system

1. What is the legal system in your jurisdiction based on (for example, civil law, common law or a mixture of both)?

The legal system in Uganda is based on common law and customary law. The law applicable in Uganda is:

  • Statutory law.

  • Common law.

  • Customary law.

  • Doctrines of equity.

Customary law, however, is only effective to the extent that it does not contravene and is in statutory law.

Business vehicles

2. What are the main forms of business vehicle used in your jurisdiction? What are the advantages and disadvantages of each vehicle?

Sole proprietorship

A sole proprietorship is a one-person business entity where an individual registers a business name with the Registrar of Business Names and an application is made for a trading licence with the local authority where the business operates. Note that registration of the business name is not mandatory.

The advantages of sole proprietorships are that:

  • They are easy to establish.

  • The owner pays personal income tax on the profits of the business.

  • The owner is entitled to all the profits of the business.

The disadvantages of a sole proprietorship are that there is:

  • Unlimited liability for the proprietor.

  • A minimal distinction between the assets and liabilities of the business and the owner.

Partnership

A partnership is a business arrangement, involving two or more people, the primary goal of which is making a profit. Assets are owned under the partnership name, but on dissolution they are shared in proportion between the partners according to the agreement dividing the profits, after settling all liabilities of the firm. A partnership is taxed as a firm.

Partnerships are categorised as either general partnerships or limited liability partnerships (LLPs). The liability of at least one of the partners (general partner) of an LLP should be unlimited. LLPs are designed to benefit partners who wish to participate in the business enterprise but not engage in the management of the business. LLPs are only liable to the extent of their contribution. These types of partnerships are traditionally used by professionals such as lawyers and accountants.

The advantages of partnerships are that:

  • Partners can jointly raise capital for their business.

  • In a general partnership, liability (including for debts and obligations) is jointly and severally shared among partners.

  • Filing documents are less onerous compared to private or public companies.

The disadvantages of LLPs are that:

  • The partnership is dissolved if one of the partners dies, unless the partners previously agreed to the contrary.

  • In a general partnership, the liability of partners is unlimited.

Private company

A private company is a business entity that is separate from its owner(s). It can sue and be sued. Liability is limited by shares or by guarantee.

The advantages of private companies are that:

  • The company can easily raise capital through borrowing and charging its assets.

  • The company can trade in its own name.

  • The continuity of the company's existence is usually not affected by individual shareholder ownership.

  • The company can own and transfer property.

The disadvantages of private companies are that:

  • Growth is limited to maximum number of shareholders.

  • There are restrictions on the transfer of shares (see Question 14).

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