CORPORATE & COMMERCIAL PRACTICE MODULE 2 CASES

Firm X Partners
1. Mpaata Jerome Owagage
2. Julianne Mwebaze
3. Diane Niyogusabwa
4. Aine Raymond
5. Gerald Ndobya
6. Muhanuuzi Dora
7. Mulindwa Fredrick
8. Daphne Musoki
9. Awino Mercy
10. Kule Roland
Statutes and Statutory Instruments
1. The Anti Money-Laundering Act 2013 (Parts I, II & VII)
2. The Companies Act No. 1 of 2012
3. The Uganda Registration Services Bureau Act Cap 210
4. The Business Names Registration Act, Cap 109 (Sections 1 & 2)
5. Electronic Transactions Act No. 8 of 2011
6. Electronic Signatures Act No. 7 of 2011
7. The Non-Governmental Organisations Act, 2016
8. The Trustees Incorporation Act Cap 165
9. The Investment Code Act Cap 92 - Part III
10. The Land Act Cap 227 (as amended) (Section 40)

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11. The Stamps Act Cap 342 - Part II
12. The Stamps (Amendment) Act No. 2/2002
13. The Companies Act (Single Member) Regulations, 2016
14. The Advocates Remuneration and Taxation of Costs Rules, 2018
15. The Companies Fees Rules SI 57 of 2005
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16. The Companies Act (Single Member) Regulations, 2016
17. The Companies Fees Rules SI 57 of 2005
18. The Uganda Registration Services Bureau Act Cap 210
19. The Investment Code Act Cap 92 - Part II
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20. The Non-Governmental Organisations Act, 2016
21. The Trustees Incorporation Act Cap 165
22. The Evidence Act, Cap 6 (Sections: 73, 74, 77, 78 & 84)
23. The Trustees Incorporation Rules SI 165 -1
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24. The Stamps Act Cap 342 - Part II The Stamps (Amendment) Act No. 2/2002
25. The Advocates Remuneration and Taxation of Costs Rules SI 267-4

Cases
1. Salomon v A. Salomon & Co Ltd, [1897] AC 22
Principle: The doctrine of corporate personality, as set out in the Companies Act 2012, i.e.
creditors of an insolvent company can not sue the company's shareholders for payment of
outstanding debts.
Facts: Mr Aron Salomon made leather boots or shoes as a sole proprietor. His sons wanted to
become business partners, so he turned the business into a limited liability company. His wife and
five elder children became subscribers. Mr Salomon took 20,001 of the company's 20,007 shares

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which was payment from A Salomon & Co Limited for his old business. The company also issued
to Mr Salomon £10,000 in debentures. On the security of his debentures, Mr Salomon received an
advance of £5,000 from Edmund Broderip. Soon after Mr Salomon incorporated his business there
was a decline in boot sales. The company failed, defaulting on its interest payments on its
debentures (half held by Broderip). Broderip sued to enforce his security. The company was put into
liquidation. Broderip was repaid his £5,000. This left £1,055 company assets remaining, of which
Salomon claimed under the retained debentures he retained (half had been issued to Broderip and he
retained half). If Salomon's claim was successful this would leave nothing for the unsecured
creditors. When the company failed, the company's liquidator contended that the floating charge
should not be honoured, and Salomon should be made responsible for the company's debts.
Salomon sued. The liquidator, on behalf of the company, counter-claimed, wanting the amounts

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paid to Salomon paid back, and his debentures cancelled. He argued that Salomon had breached his
fiduciary duty to the new company he was promoting by selling his business for an excessive price.
He also argued that the whole formation of the company in this way was intended as a fraud against
its potential unsecured creditors in the future.
Held: A company once incorporated attains legal personality separate from its owners/shareholders.
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Mr. Salomon was not only entitled to claim on the debentures but was shielded from personal
liability in respect of the company’s debts.

2. Kelner v Baxter [1866] LR 2 CP 174

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Principle: Pre-incorporation contracts were void and could not be saved (except by novation) by
ratification at common law. Position now changed by S.54 of The Companies’ Act 2012
A group of company promoters for a new hotel business entered into a contract, purportedly on
behalf of the company which was not yet registered, to purchase wine. Once the company was
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registered, it ratified the contract. However, the wine was consumed before the money was paid,
and the company unfortunately went into liquidation. The promoters, as agents, were sued on the
contract. They argued that liability under the contract had passed, by ratification, to the company
and that they were hence not personally liable.
Held that as the company did not exist at the time of the agreement the contract would be wholly
inoperative unless it was binding on the promoters personally and a stranger cannot by subsequent
ratification relieve them from that responsibility. On the other hand, a promoter can avoid personal
liability if the company, after incorporation, and the third party substitutes the original
pre-incorporation contract with a new contract on similar terms. Novation, as this is called, may
also be inferred by the conduct of the parties such as where the terms of the original agreement are
changed.

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3. Ngaramtoni Estates Ltd. –Vs- CIT [1969] 1 ALR Comm. 186

4. Java Coffee & Tea Limited Versus Uganda Registration Services Bureau, Café Javas
Limited & Mandela Auto Spares Limited Company Cause No. 16 of 2014 (Commercial
Court)
NAIROBI JAVA HOUSE LTD V MANDELA AUTO SPARES LTD (CIVIL APPEAL 13 OF
2015)
Sought orders that The Court sets aside the decision of the Registrar of Trademarks in which the
Registrar upheld a trademark opposition filed by Mandela Auto Spares and refused the application
for registration of trademark "Java House and Java Sun" and "Nairobi Java House"; and a

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consequential order compelling the Registrar of Trademarks to allow trademark application "Java
House and Java Sun" and trademark application number 48063/2013 "Nairobi Java House" to
proceed registration.
HELD
- Identical or resembling trademarks with regard to the same services, description of services or
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associated goods and services should not be registered under section 26 or upon the discretion of
the Registrar under section 27 of the Trademarks Act respectively.
- The Trade mark sought to be registered should be capable of distinguishing particular services of
the owner thereof from other similar services not of the owner or not connected generally with that
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of the owner.
- The use of the inherent capability or consideration of the use of the trade mark or of other
circumstances making it capable of distinguishing goods or services is a discretionary power
because of the phrase: the Registrar or the court may have regard to the extent …” The first basic
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criteria are therefore the capability to distinguish services.

- To be capable of distinguishing goods and services of one undertaking from another, the
trademark must say or be capable of saying on its face that the goods or services come from X
rather than from Y or Z. The trademark is an indicator of origin of the goods or services. It is a
guarantee of trade origin or a badge of origin of the goods or services. The statute itself provides for
marks which may or may not be registered.
- The decision of the Registrar stifled free movement of services within the East African
Community by restriction on the registration of a trademark registered prior in time in Kenya on the
ground of registration of a trademark albeit registered later in time to Uganda.

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- As far as likelihood of confusion is concerned there was no survey which had been conducted.
The opinion of two deponents was insufficient to reach the conclusion that the registrar reached the
confusion of members of the public.

5. Mathew Rukikaire Vs. Incafex S.C.C.A No. 3 of 2015.

Principle: Who is a subscriber, member, and a shareholder
Facts
The appellant lodged this suit on the ground that the affairs of the company were being run in a
manner that was oppressive to him. This was made in specific reference to the fact that he had been
closed out of the company's meetings and there was no transparency in the financial affairs of the
company. The respondent company through its MD asserted that he was never a member or

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shareholder of the company because he had never paid for the allotted shares and these were
equally being held on the benefit of a trust. The high court held that he was a shareholder, a
decision overruled by the court of appeal and hence this appeal.
Issues
The learned trial Judge erred in law and fact in holding that the petitioner was a shareholder in
Incafex Ltd.
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Holding
The process of incorporating a company limited by shares involves registration of the company’s
memorandum and articles of association which are signed by subscribers.
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(a) A subscriber
A ‘subscriber’ is the term applied to the first members of a private limited company who add their
names to the memorandum of association during the company formation process. By doing so, they
agree to form a company and become members/share- holders in the company.
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(b) Member
When a person either individual or corporate is allotted shares subsequent to the formation of the
company, that person becomes a ‘shareholder’, ‘member’ or ‘owner’ and stands in the same
position as the subscriber. Citing David J. Bakibinga in his book, Company Law in Uganda, 2001
at page 66 states that, agreement to become a member can be through allotment of shares. This
position was also reflected in Section 27(2) of the Companies Act Cap 110. What can be deduced
from the section is that a person may become a member of a company in two ways;
I. by subscribing to the memorandum of association; and
II. by agreement to be a member subsequent to the formation of a company.
Referring to Lutaaya vs. Gandesha [1986] HCB 46 the court emphasised that there was not one
exclusive or exhaustive mode of proving membership of a Company. Even the occurrence of one's

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name on the register of members was only prima facie evidence and other evidence could be
adduced to rebut that. Therefore, other modes could be used to prove membership of the company.
Some of the ways of proving membership was possession of a share certificate and to some extent
the appearance of one’s name on the annual return. But none of these was exclusive or conclusive.
Since the appellant was a member to whom shares had been allotted and whose name appeared in
the company’s annual return, he was a member of the company.

(c) Shareholder
Section 54 of the said Companies Act required a company to file a return of the allotment of its
shares with the company Registrar within 60 days of the making of the allotment. Citing Gower
and Davies, in Principles of Modern Company Law, 8th edition at page 845 the court defined

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‘allotment’ as the process by which the Company finds someone who is willing to become a
shareholder of the company.
The process of becoming a shareholder is a two-step one, involving first a contract of allotment and
then registration of the member. Citing Lord Templeman in National Westminster or Bank Plc
vs. IRC (1995) A.C111 at 126 “allotment does not make a person a member of the company. Entry
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onto the register is also needed. Lord Templeman further stated that an applicant (for shares) is
neither a member nor a shareholder while his rights rest in contract until the issue of the shares has
been completed by registration
Therefore, allotment confers a right to be registered as a member. Referring to Mawogola Farmers
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& Growers Ltd vs. Kayanja [1971] E.A 272, if a person has paid for his shares and has been
issued with a share certificate but his name is not in the share register, such a person should be
allowed to prove he is a member despite … the absence of a register. Lutta JA concurring with
Mustafa JA also held that the register cannot be said to be conclusive of membership of the
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company. That Section 28 of the Companies Act does not make the register of members final and
conclusive of the membership. A person may agree to be a shareholder and is made a shareholder
by paying for his shares and actually being issued with share certificates, or being given receipts in
respect of the payment although his name may not, de facto, be in the register. In this case since the
plaintiff showed that he had contributed a land rover car and land to the company, the court held
that he was henceforth a shareholder.
The obligation to pay for shares allotted.
The obligation of a member of a company limited by shares, to pay for the shares arises either when
the company calls upon the shareholder to make payment for the unpaid shares during its operation
or when the company is being wound up. And on a company being wound up, the liability of the

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shareholder is limited to the extent of the unpaid shares that he or she holds. The lack of evidence
that the appellant had paid for the 450 shares does not affect his membership in the company

6. Price Vs Kelsall [1954] EA 752

Provision: Section 54
Principle: A company cannot ratify a contract purporting to be made by someone on its behalf
before its incorporation but there may be circumstances from which it may be inferred that the
company after its incorporation has made a new contract to the effect of the old agreement. The
mere confirmation and adoption by Directors of a contract made before the formation of the
company by persons purporting to act on behalf of the company creates no contractual relations
whatsoever between the company and the other party to the contract. However, acts may be done by

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a company after its formation which gives rise to an inference of a new contract on the same terms
as the old one.
It does not follow that acts may not be done by the company after its formation which make a new
contract to the same effect as the old one. A new contract could not be inferred from the acts of the
company where there was a mistaken belief that the previous contract was binding. No new contract
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can be inferred where all subsequent acts of the company are referable to the previous agreement
which the directors erroneously supposed to be binding.

7. Salim Jamal & Others v Uganda Oxygen Ltd &Ors, S.C.C.A No. 64 of 1995.
Principle:
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Ever since the famous case of Salomon V. Salomon & Co. (1897) A.C, 22, Courts have rigidly
applied the principle of corporate personality. But exceptions to the principle have also been made
where it is too flagrantly opposed to justice or convenience or in the interest of Revenue collection.
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In such exceptional cases, the law either goes behind the corporate personality to the individual
members or ignores the separate personality of each company in favour of the economic entity
constituted by holding and subsidiary companies.
Moir V. Wallersteiner (1975) 1 All. E.R. 849 illustrates how the law can go behind the corporate
personality of a company to the individual member to allow the member to bring a derivative
action. 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.
On the derivative action Lord Denning MR said at page 857:

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“It is a fundamental principle of our law that a company is a legal person with its own corporate
identity, separate and distinct from the directors or shareholders and with its own property rights
and interests to which alone it is entitled. If it is defrauded by a wrongdoer, the company itself is the
one person to sue for the damage. Such is the rule in Foss V. Harbottle (1843) 2 Hare 461.
The rule is easy enough to apply when the company is defrauded by outsiders. The company itself
is the only one who can sue. Likewise, when it is defrauded by insiders of the minor kind, once
again the company is the only person who can sue. But suppose it is defrauded by insiders who
control its affairs - by directors who hold majority of the shares - who then can sue for damages?
Those directors themselves are the wrong doers. If a board meeting is held they will not authorise
proceedings to be taken by the company against themselves. If a general meeting is called they will
vote down any suggestion that the company should sue themselves. Yet the company is the one

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person who is damnified.
It is the person who should sue otherwise the law would fail in its purpose; injustice would be done
without redress. In Foss V. Harbottle, Wigram VC, saw the problem and. suggested a solution. A
suit could be brought by individual cooperators in their private characters, and asking in such
character the protection of rights to which in their corporate character they were entitled. The
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learned author explains the difference between two types of action which may be bought by or on
behalf of the company. One is the type of case of which Foss V Harbottle (supra) is an example,
where a wrong has been done to a company. An action is brought to restrain its continuance, or to
recover the company’s property, or damages, or compensation. There, the company plaintiff is the
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true plaintiff. The other is where the dispute is not an internal one between those interested in the
company, but are between the company on the one hand and third parties on the other, and. it makes
no difference in principle that the third parties happen to be the directors or controlling shareholders
of the company. If anyone other than the company is allowed to appear as plaintiff it is an anomaly,
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allowed only as a matter of grace to prevent a serious wrong from going unremedied, because the
wrong doers control the company.

8. Kakooza Lugunju Joseph v Ethiopian Airlines Ltd. (1982) H.C.B 111.

Principle: A member is not entitled to claim damages personally for loss suffered by the company.
The Plaintiff was the managing director of Joseph Kakooza & Bros Ltd. The Chinese Embassy
invited the company’s representative to attend a Chinese Export Commodities Fair in China. The
plaintiff failed to get a seat on the plane of his choice and sued. The plane had been diverted after it
had been prevented from landing at the airport.
Allen J held: the plaintiff failed to prove that he personally (as distinct from his company) had
suffered any loss.

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9. Ssenyonga Ali & Ors v Kakooza Rajab Hussein &Ors (1992-93) H.C.B 93
It has been said that articles of association ought not to be construed too meticulously. According
to Judge Wynn Parry in Re Hartley Baird Ltd (1955) CR. 143,
“The interpretation of the maxim ‘ut res magis valeat quam pereat’ should certainly be applied, and
I propose to interpret these articles in the light of that maxim’. Am not aware that this maxim has
ever been put Into English, but I suggest that it directs to “validate if possible”.
And also per Jenkins L. J. in Holmes V. Keyes (1959) CH. 19 215 where he is reported as saying
that in view the ‘articles of association of the company should be regarded as a business document
and should be constructed so as a business to give them reasonable business efficacy. In preference
to results which would or might prove unworkable. Again, (at p.9 of the judgments) Vaisey J. had

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this to say: -
“The conclusion to which I have come Say not be of so general an application as to extend to the
articles of association of every company, for it is, I think, material to remember that this private
company is one of that class of companies which bears a close analogy to a partnership.”
It will be observed that Rayfield V. Hanes (above –cited) differs from the fact of the instant case in
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that there a purely commercial company was concerned; the decision was taken in order to promote
business efficacy. It will also be observed that Rayfield was a private company, as is the UMSC,
and according to Vaisey; J. Rayfield was of “that class of companies that bears a close analogy to
partnership”. Therefore, the rules applying to private companies applied to it.
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10. Kenya Seed Company Limited – Vs Nathaniel Kipkorir Tum & Eufrazio Juliao Goes
HCCS No 180 of 2010 (unreported)
Brief Facts
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The Plaintiff's action against the Defendants jointly and severally as disclosed in the plaint is for
declarations that the shares they hold in the business concern known as Mount Elgon Seed
Company Ltd was held in trust for the Plaintiff. The Plaintiff seeks orders for transfer of the shares
from the Defendants to the Plaintiff or its appointed nominee, general damages for breach of the
fiduciary duty owed to the Plaintiff by the Defendants and costs of the suit.
Issue: Whether the shares held by the Defendants in Mount Elgon Seed Company Ltd are held by
them in trust for the Plaintiff or are held by them in their own right?
Held:
No of Subscribers on incorporation of a company. Section 3 (1) of the repealed Company Act
required that there should be two subscribers before a company is incorporated. Therefore, the point
of law is to the effect that the court cannot grant the remedies sought by the Plaintiffs on the ground

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that to hold that the shares are held in trust for the Plaintiff would be tantamount to holding that the
company was incorporated by one subscriber contrary to section 3 (1) of the repealed Companies
Act Cap 110. Whereas the new Companies Act 2012 allows for companies to be incorporated with
only one subscriber, it could not be applied retrospectively to this case.
On the resulting trust: Black's Law Dictionary 7th Edition at page 1417 defines a resulting trust as
a trust imposed by law when property is transferred under circumstances suggesting that the
transferor did not intend for the transferee to have the beneficial interest in the property. Underhill
On Trusts 11th edition page 172 that:
● When it appears to have been the intention of the donor that the donee should not take
beneficially there will be a resulting trust in favour of the donor.
● There was no trust because there is no evidence about how the Defendants related to the

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Plaintiff Company on matters concerning the advancement of the Plaintiffs business of
selling seeds in the Great Lakes Region. It is my firm conclusion that it was a legal
requirement for incorporation of Mount Elgon Seed Company for there to be at least two
subscribers. The Defendants fulfilled the bare minimum requirement under the Companies
Act cap 110 (repealed).
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On promoters: According to Words and Phrases Legally Defined, third edition volume 3 at page
441 the term promoter is not a legal term but a term of business. It is a convenient way of
designating those who set in motion the machinery for incorporation of a company.
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11. Dawson V White & Case, 88 N.Y 2d 666
In 1988, the law firm of White & Case dissolved and then re-formed without one of its partners,
Evan R. Dawson; who later sued his former partners seeking to have the accounts of the firm
balanced and his share ascertained. The pertinent question in the appeal was (i) whether the law
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firm possesses goodwill that can be distributed in an accounting proceeding? It was held:
The first issue is whether White & Case possessed goodwill that was capable of distribution upon
dissolution. When applied to law firms, the term "goodwill" refers to the "ability to attract clients as
[a] result of [the] firm's name, location, or the reputation of [its] lawyers" (Black's Law Dictionary
695 [6th ed]). By statute, then, the partners are free to exclude particular items from the class of
distributable partnership property, and such an agreement will be enforced in an accounting
proceeding. Thus, even if a given partnership might be said to possess goodwill, the courts will
honour an agreement among partners whether express or implied that goodwill not be considered an
asset of the firm.
"Good will, when it exists as incidental to the business of a partnership, is presumptively an asset to
be accounted for like any other by those who liquidate the business. * * * The course of dealing,

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however, can stamp it with a different quality. Partners may contract that good will, though it exist,
shall not `be considered as property or as an asset of the co-partnership' * * *. The contract may `be
expressly made,' or it may `arise by implication, from other contracts and the acts and conduct of
the parties'" (id., at 6 [citations omitted]).
COMMENT: the central point here is on the fact that goodwill can be regarded as an asset – the
name, location or reputation of an entity is its goodwill. When it comes to companies, therefore,
insofar as the reputation of an employee or director is concerned, it can be regarded as an asset.

12. Twycross V Grant (1877)2 CPD 469)

Principle:
Defines a promoter as a person who undertakes to form a company with reference to a given

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project, and to set it going and takes the necessary steps to accomplish that purpose.
FACTS: The Plaintiff had bought shares in a company promoted by the defendant. The prospectus
was fraudulent having failed to mention certain contracts which made the shares valueless.
HELD: The shares being worthless, the Plaintiff was entitled to have his price repaid
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13. Kololo Curing Co. Ltd V West Mengo Co-op Union Ltd (1981) HCB 60
Principles
i. Failure to furnish particulars of a company’s registered office and address of its officers and
members is not a matter only between the company and the registrar. The registry of companies is a
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public record and the purpose of registering particulars of a company is to inform the public who
may, in future, wish to deal with the company.
ii. If such particulars were not provided, third parties were entitled to presume that the company
was not functioning or had not started functioning. This presumption is rebuttable and shifts the
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burden onto the company to prove that its failure to file its particulars notwithstanding, it had
nevertheless started and it is functioning.
iii. On whether promoters could be sued individually in the event that the company had not
commenced business – a promoter does not cease to be such by reason only of the incorporation of
the company or even by mere reason of appointment of directors. A person, although not a director
of a company may be promoter of that company which is already incorporated but the capital of
which is not yet taken up and which is not yet in a position to perform the obligation imposed upon
it by the creditors.
iv. If therefore the applicant had been able to prove that the company had not started to function
since its incorporation, the court would not have hesitated to order the joinder of the promoters as
plaintiffs to give an opportunity to the defendant to ascertain against whom to levy execution.

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FACTS: Kololo Curing brought the application seeking a joinder of two parties who were
promoters of West Mengo. The grounds relied on were that since its incorporation, the company
had not filed with the Registrar the necessary particulars and as a result, the applicant was not sure
whether Respondent had ever since its incorporation, started functioning. That also due to this
failure, no director/secretary/member of the plaintiff company was known. Applicant expressed his
apprehension that if the R lost the suit, it would have no one against whom to levy execution.

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