MAKERERE UNIVERSITY

BUSINESS SCHOOL

BACHELOR OF BUSINESS ADMINISTRATION

BUSINESS LAW II
NAMES OF THE GROUP MEMBERS

NAME REG NUMBER SIGNATURE

1. OKONG AMBROSE .O.
2. NAMUYA RAYMOND VINCENT
3. OGWAL ISAAC
4. RWOTHOMIO BENEDICT
5. OYUKI IVAN JOHN
6. EROKOT PHILLIP
7. AHMED OMAR ISMAIL
8. NAKAYIMA HABIBAH
9. MANDANA ERIC
QUESTION TWO:

Once a company has been incorporated, it becomes liable for all its activities and under no
circumstances can this liability be taken away from the company. Discuss

A company is a legal entity that is separate and set apart from its members. Once a company has
fulfilled all the registration requirements, it’s issued with a certificate of incorporation which
implies that the company has officially been brought into existence and this implies that, it
therefore becomes liable for all its activities in that;
It’s a legal entity and liable for all its Debts and Obligation, own property separate from its
members, can contract making them be in position to borrow as well and most of it all can sue
and be sued, However there are some cases where the legal person of the Company may be
disregarded by a factor known as lifting the Veil of incorporation.
According to the Company’s Act, Lifting the Veil means disregarding the Cooperate personality
of the company in order to apportion liability to a person who carries out any Act. It is therefore
recognized under two heads which are statutory lifting of the Veil and Lifting the Veil under
Case Law.
a) Lifting of the Veil under statue;
 Where the company is operating with members below the legal minimum
Under Section 20. Of the company’s Act, If a company other than a single member company
membership is reduced below the Statutory minimum, the corporate veil will be lifted for
example if a public company Operates with one Member other than two, the liability of the
Company will then be shifted to the members in default.

 Where the Company is not mentioned in the bill of exchange

Under the Company’s Act an officer of the Company is personally liable if he signed a bill of
exchange for example a cheque on behalf of the company without mentioning the company’s
Name on it in clear characters

 Holding and subsidiary Companies

Where Companies are in the relationship of Holding and Subsidiary Companies, Group accounts
are presented before the Holding Company in the general Meeting and hence the Holding
company and the Subsidiary are regarded as one for the Accounting Purposes implying that the

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separate nature of the subsidiary company is ignored. For example MUBS being a subsidiary of
MUK will present their accounts to MUK being the Holding Company inform of group accounts
and hence the separate nature of MUBS is ignored.

 Investigation into related companies

Where an inspector has been appointed by the registrar to investigate the affairs of a company he
may if he fit also to investigate into the affairs of any other related Company and also report on
the affairs of that other company as long as he feels that the results of his investigation of such a
related company are relevant to the main investigation hence the separate nature of the other
company has been ignored for example an inspector appointed to investigate on MUK may also
investigate and report on MUBS hence ignoring separate Nature of MUBS

 Reckless and fraudulent trading

Where the company directors are involved in any fraud, separate legal entity of the Company is
disregarded and those personally held liable

The separate legal entity of a company is disregarded if there is any tax evasion by the
management of a company and hence they are personally liable for example in the case of WBS
TV and Wavamuno who was the owner of the company and in the case where he was demanded
to pay a certain amount of tax and he dodged to pay it, the law had to deal with him instead of
WBS.

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b) Lifting the Veil under case Law
 Taxation
 Where the company acts as an agent of the shareholders
Where the shareholders of a company use the company as an agent they will be liable for the
debts of the company. For example if a shareholder uses a company to compete and with for a
contact, in case of any breach of contract by the company, the shareholder will personally be
liable since the company was acting as an agent of the shareholder.

 Where a company is deemed trustee of the shareholders

This can occur in cases where a company entrust its property to the shareholders and shares can
be held in charitable trusts

 Where there has been fraud or improper conduct

The members of a company may at times take advantage and use the corporate personality of a
company as mask for fraud or illegality. Hence they may use the company to do their dirty work
for example in cases of jones Vs. Lipmann.

 Ratifying corporate acts

Under the law, a company is bound only by resolutions of its organs such as board of directors or
dully constituted general meeting, hence in resolutions passed by members without a proper
convened meeting or proper consent, those involved are personally held liable. However in some
cases these independent consent by members without convening any meeting may also bind the
company.

 Determination of Residence;
In some cases, court may look behind the Veil or the façade of the company and focuses as well
on the central management with its control for example Board of directors to determine whether
the management of a company lies within or outside a country and hence determine whether it is
resident or non-resident for tax purposes.

In conclusion, incorporation of a company enforces direct liability of all its actions on the
company but in some cases, the corporate personality of a company can be disregarded and this

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makes individual members to held liable basing on statues of law or following the various cases
for lifting the Veil under case law.

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