Decoding business associations in Uganda
At Lawgic Advocates, a considerable percentage of the clients that we receive are people who seek advice on how to form and maintain associations with others by which they can carry out business.
In a bid to improve literacy in this area, we have started this weekly series where over the next few weeks, we will discuss, in the plainest terms possible, the most common types of business associations in Uganda; from their inception, to best practices and principles of operating them (corporate governance, taxation, intellectual property) and for those that seek funding, we’ll decode startup funding.
Legal personality:
First, we must understand this very important aspect of business associations. Legal personality means the legal capacity to enter into contracts, and to sue and be sued as a single entity. Therefore an individual has legal personality. A company, too, once registered, is deemed a person who can enter into contracts and sue and be sued in its own name, regardless of how many people there are in the company. The Company is deemed a person in itself, separate from its members.
I have been approached by different people who want to start some sort of organisation through which they can establish relationships with, especially, banks; whether for savings or for access to credit. What banks require is that these groups be registered in some way in order to gain legal personality.
Below I discuss the different business associations, their formation and their legal status.
Associations and Investment clubs:
At community level, groups of people that might want to form an association for purposes of meeting specific economic, social and cultural needs can register a Community Based Organisation (CBO). These are usually members of a community coming together to, for example, carry out some project from which they can all earn an income; or a group of friends coming together to save and invest money in order to improve the welfare of their members.
Registration of these kinds of associations is done by the Community Development Officer at the different headquarters of the district in which they are based. They require a membership of more than 20 people in order to be registered.
Registration of a CBO does not necessarily give the CBO legal personality in the strict legal sense of the term. For example, a CBO would not be able to be hold land (we will discuss, later on in this series, how this can be done) in its own name or to sue or be sued. However, CBOs would be able to open and operate accounts with different banks and have access to some community based funding for their projects. Some companies also partner with CBOs in business.
Many clients we receive think that for an association or investment club to open and operate a bank account, it is as simple as submitting a copy of their Constitution to the bank. The strictest requirement is, in fact, that the Association or Club be registered.
SACCOs and Multi-purpose Co-Operative Societies:
Co-operative Societies are groups of people who unite and work together with the common goal to meet specific economic, social and cultural needs through a jointly owned and democratically controlled enterprise. The most common Co-operative Societies in Uganda are Savings and Credit Co-operative Societies (SACCOs).
The major difference between a SACCO and an Investment Club is that a SACCO has legal personality under the law. A SACCO is more formal and adheres by strict laws of establishment and operation than an Investment Club.
Members of a SACCO make specified contributions to and savings with the SACCO and can also borrow money from the SACCO.
A SACCO is a members-only organisation; it can provide the services of saving and lending only to its members. SACCOs are registered by the Registrar of Co-operative Societies at the Ministry of Trade, Industry and Co-operatives located at the Farmers’ House, Parliamentary Avenue. Visit their website at www.mtic.go.ug for further details.
Read again next week; we will discuss registration of businesses and companies.
Kokunda Patience- Associate Partner, Lawgic Advocates