Opinion: Legal challenges faced by new businesses in Uganda

Opinions

By Silver Kayondo

Ugandan businesses face a number of legal challenges that hinder their growth and lead to the high mortality rate of SMEs. These challenges are even more arduous for new businesses. The most notable ones are;

  • Choice of legal structure

There are several legal structures available for business set up in Uganda. These include sole proprietorships, partnerships, limited liability companies, and limited liability partnerships. The legal implications of each are different. For instance, a private company is a separate legal entity separate and independent from its members. As a general rule, any rights, obligations or liabilities of a company are separate from those of its shareholders, who are responsible only to the extent of their capital contributions, hence the limited liability.

  • Employment matters

The nature of most Ugandan SMEs is informal, and thus, this informality in most cases extends to employment relationships. Employees are different from independent contractors. The laws governing the employer-employee relationship include the Employment Act, 2006; the Labour Unions Act, 2006; the Labour Disputes (Arbitration and Settlement) Act, 2006; and Regulations such as the Employment (Sexual Harassment) Regulations, 2012; the Employment (Employment of Children) Regulations, 2012, etc. Other aspects relate to employment benefits such as NSSF and income tax.

  • Contracts

Contracts are the life-blood of business. Commercial arrangements with landlords, tenants, suppliers, creditors, off-takers, agents, etc are all contractual in nature. The Contracts Act, 2010 stipulates the validity aspects of contracts, performance and enforcement aspects. Other laws to consider include the Sale of Goods and Supply of Services Act, 2017; the Land Act, 1998 (as amended) in relation to land sale and purchase transactions; the Mortgage Act, 2009 pertaining to mortgage transactions; the Tier 4 Microfinance Institutions & Money Lenders Act, 2016 among others.

  • Licensing, certification and compliance

To operate, businesses require trade licenses from the Municipal Authority/Council Authority where the company premises are located. If operating in Kampala, the licensing body is the Kampala Capital City Authority (KCCA).

Product certifications for certain lines of businesses such as foods, drinks, cosmetics, etc is also paramount. At present, this is done by the Uganda National Bureau of Standards (UNBS). Product testing is done at the chemistry, electrical, microbiology, and materials and engineering laboratories.

Depending on sector, other certification agencies are the Uganda Communications Commission (UCC), the National Drug Authority (NDA), and the National Information Technology Authority (NITA).

Corporate compliance in terms of filing of annual returns, corporate governance, and documents registry is handled by the Uganda Registration Services Bureau (URSB).

  • Tax

The Uganda Revenue Authority (URA) handles all tax related matters. Individual business owners have personal tax obligations, and the business entity formed also has its own tax obligations such as Value Added Tax (VAT), import duty if involved in import business; excise duty if involved in excisable business such as cement, sugar, malt beer, cosmetics, etc; income tax depending on annual turnover; Pay As You Earn (PAYE) and Local Service Tax (LST) for staff, etc.

  • Intellectual property

Uganda recognizes IP rights such as copyright, trademarks, patents, utility models, and trade secrets. Registration of such rights and proper documentation of assignments, transfers and other commercial arrangements is done at URSB.

In a nutshell, these are some of the legal issues to consider when setting up a business. This material is intended for general information purposes only and does not constitute legal advice. For legal issues that arise, the reader should consult legal counsel.

Silver Kayondo is a commercial lawyer, technology enthusiast, venture capital advisor and Fourth Industrial Revolution evangelist.

Twitter: @SilverKayondo

Email: lawyerkayondo@gmail.com

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