BACHELOR IN BUSINESS ADMINISTRATION

SEMESTER 3

BBA – Company Law

ASSIGNMENT 1

Prepared for:
Lecturer’s name:

Prepared by:
Student’s Name: – ID No:
Table of Contents

Introduction......................................................................................................................................1

THE STOCK MARKET...........................................................................................................1

Stock Exchange in Uganda........................................................................................................1

Objectives....................................................................................................................................1

What is a Share?.....................................................................................................................1

How to become a shareholder in Uganda?...........................................................................2

How do you buy Shares in Uganda?.....................................................................................2

How do you sell Shares in Uganda?......................................................................................2

How can you access your shares digitally?..........................................................................2

How do you benefit from owning shares in Uganda?.........................................................3

What are the risks you may face?.........................................................................................3

EXAMINING THE KEY PLAYERS.......................................................................................3

GOVERNMENT........................................................................................................................3

CAPITAL MARKETS AUTHORITY.....................................................................................4

STOCK EXCHANGE................................................................................................................5

Requirements for setting up a Stock Exchange........................................................................5

BROKERS/MIDDLE AGENTS...............................................................................................6

PUBLIC COMPANIES.............................................................................................................6

Legal Implications of Listed Companies..............................................................................9

 THE PUBLIC.............................................................................................................................9

WHY MORE UGANDAN COMPANIES SHOULD GO PUBLIC..........................................9

CONCLUSION............................................................................................................................12
Introduction

If you’re not well-versed in the basics of the stock market, the stock trading information spewing
from CNBC or the markets section of your favorite newspaper can border on gibberish.

Phrases like “earnings movers” and “intraday highs” don’t mean much to the average investor,
and in many cases, they shouldn’t. If you’re in it for the long term — with, say, a portfolio of
mutual funds geared toward retirement — you don’t need to worry about what these words
mean, or about the flashes of red or green that cross the bottom of your TV screen. You can get
by just fine without understanding the stock market much at all.

Stock market basics.

The stock market is made up of exchanges, like the New York Stock Exchange and the Nasdaq.
Stocks are listed on a specific exchange, which brings buyers and sellers together and acts as a
market for the shares of those stocks. The exchange tracks the supply and demand — and
directly related, the price — of each stock.

But this isn’t your typical market, and you can’t show up and pick your shares off a shelf the way
you select produce at the grocery store. Individual traders are typically represented by brokers —
these days, that’s often an online broker. You place your stock trades through the broker, which
then deals with the exchange on your behalf. (Need a broker? See our analysis of the
best stockbrokers for beginners.)

The NYSE and the Nasdaq are open from 9:30 a.m. to 4 p.m. Eastern, with premarket and after-
hours trading sessions also available, depending on your broker.

Understanding the stock market

When people refer to the stock market being up or down, they’re generally referring to one of the
major market indexes.

A market index tracks the performance of a group of stocks, which either represents the market
as a whole or a specific sector of the market, like technology or retail companies. You’re likely
to hear most about the S&P 500, the Nasdaq composite and the Dow Jones Industrial Average;
they are often used as proxies for the performance of the overall market.

Investors use indexes to benchmark the performance of their own portfolios and, in some cases,
to inform their stock trading decisions. You can also invest in an entire index through index
funds and exchange-traded funds, or ETFs, which track a specific index or sector of the market.

Stock trading information.

Most investors would be well-advised to build a diversified portfolio of stocks or stock index
funds and hold on to it through good times and bad. But investors who like a little more action
engage in stock trading. Stock trading involves buying and selling stocks frequently in an
attempt to time the market.

The goal of stock traders is to capitalize on short-term market events to sell stocks for a profit, or
buy stocks at a low. Some stock traders are day traders, which means they buy and sell several
times throughout the day. Others are simply active traders, placing a dozen or more trades per
month. (Interested in individual stocks? View our list of the best-performing stocks this year.)

Investors who trade stocks do extensive research, often devoting hours a day to following the
market. They rely on technical analysis, using tools to chart a stock's movements in an attempt
to find trading opportunities and trends. Many online brokers offer stock trading information,
including analyst reports, stock research and charting tools.

Stock Exchange in Uganda.

The Uganda Securities Exchange (USE) was established in 1997 as a company limited by
guarantee and was licensed in 1998 by the Capital Markets Authority to operate as an approved
securities exchange. The Exchange is governed by a Governing Council whose membership
includes licensed broker/dealer firms, investment advisors, a representative of investors and a
representative of issuers.
Objectives

To determine how the Ugandan stock market with other national economic activities.

What is a Share?
In financial markets, a share is a unit used as mutual funds, limited partnerships, and real estate
investment trusts. The owner of shares in the company is a shareholder of the corporation. A
share is an indivisible unit of capital, expressing the ownership relationship between the
company and the shareholder.

How to become a shareholder in Uganda?

Visit one of Uganda Securities Exchange’s licensed stock brokerage firms and open a Security
Central Depositary (SCD) Account. To open an SCD account, you need a valid ID and 3
passport photos. Please note that account opening is free and there are no monthly or annual
charges.

Can you buy Shares in Uganda?

It is very obvious that one can buy shares in Uganda. As an investor wishing to buy shares
through the USE, you must approach your stock broker and express your desire to buy shares of
a given listed company. Your Stock broker will provide you with details of the trust account
specifically opened by the stock brokers to keep investor’s money intended for USE transactions.
You will then deposit the money of any amount into the trust account. It is a requirement of the
USE that for local orders, payment is made upfront by the investor. Your stock broker will then
post the order (bid) on the Automated Trading System (ATS) during trading hours. When the bid
matches an offer (an order to sell) by either the same stock broker or other stock brokers, then
the transaction is considered to have been concluded.

Your Stock broker will then credit the shares to your SCD account.

Can you sell Shares in Uganda?

The answer to this question is yes! As an investor wishing to sell his shares through the USE,
you must approach your stock broker and express your desire to sell your shares of a given listed
company. Your Stock broker will assist you to complete a Sell Order form. Your stock broker
will then post the sell order on the ATS

When the offer is matched with a bid, the transaction is considered to have been concluded, and
the shares will have been sold. Your stock broker will then debit the shares from your SCD
account. Money is then wired to your bank account by your Stock broker.

Types of Stock Exchange Orders.

An investor may instruct his/her stock broker to process several types of orders.

Limit order which has a specified price when it is posted for execution

A market order which does not have a specific price when posted for execution. This type of
order must be executed promptly at the best price obtainable and will have priority over limit
order at the same price levels. It assumes an initial price limit value normally based on the price
most advantageous in the market. A market order trades through a range of prices starting at the
best price in the market.

Accessing your shares digitally in Uganda?

The Uganda Securities Exchange (USE) recently launched the e-platform dubbed ‘Easy Portal’
as a strategy to ease access to real time trading information, cutting the journey to a stockbroker.
The portal provides an option for investors to take charge of their portfolio by personally
monitoring their accounts. It is a self-service portfolio management solution. In addition to that,
the portal also provides an IPO application service for existing investors to participate in public
offers

How do you benefit from owning shares in Uganda?

 Ownership: An investment in a share gives you part ownership of the company.

 Voting Rights: As a shareholder, you will be a participant in the running of a company
through your Voter’s Rights. Voting rights give you the power to decide on future
company actions at the company Annual General Meeting (AGM).
  Income Return: If market conditions are favorable, some companies pay out dividends
which can make the investor money even if the share price does not rise.
 The form of Savings: Some shareholders commit a part of their monthly salary or
earnings to buying shares. Share prices can increase by any margin, unlike fixed deposits
which have a fixed interest rate.
 Investments are Liquid: Shares and Bonds can be bought and sold anytime the market is
open for trading.

Offer protection against Inflation especially when stock prices appreciate at rates greater
than inflation.

 Collateral Security for getting loans: Shares can be used as collateral for securing
loans. Gains through Bonus and Rights Issues. A bonus issue is when a public listed
company gives free shares to its existing shareholders. A rights issue is when a public
listed company gives its existing shareholders the right to buy more shares at a reduced
(discount) price compared to the prevailing market price. In both cases, the shareholders
can sell their newly acquired shares at the prevailing market price and make a profit but
one has to be a shareholder already to qualify for bonus shares or rights.
 Accessibility: There are many stocks and bonds available in the market today.
 Limited Liability: One of the great advantages of buying stocks is limited liability. Even
though you own part of the company, you are not held personally liable if the company
goes bankrupt and has to pay debts. The Capital Markets Authority (stock market
regulator) monitors the market to ensure the safety of shareholders’ investments.
 Safe Investment: A principal amount is returned to the investor after maturity.

What are the risks you may face?

Unfavorable changes. Share prices vary widely day to day. This may be caused by changes in the
industry, economically or politically driven. This can affect a company’ financial performance in
the Stock Exchange.
EXAMINING THE KEY PLAYERS

GOVERNMENT

Government of Uganda has formed laws as legal and regulatory set up of the Stock Market. For
any person or corporate body to participate in the stock market, he or she must meet the criteria
laid down by these laws and the regulations thereunder.

The government of Uganda lays down the laws governing the Stock Market. Overtime, the
government has passed bills in parliament such as;

 The Capital Markets Authority Act, Cap 84

 The Companies Act 2012
 The Securities Central Depository Act 2009
 The Collective Investments Scheme Act 2003; among others

The government also plays a part in interpretation of these laws where ambiguities or disputes
arise through the Courts of law.6 In a more recent decision, the High Court of Uganda issued an
Order of Certiorari quashing the decision of the Capital Markets Authority for the Cancellation
of Approval for ALTX East Africa Limited to Operate a Securities Exchange.

Last but not least, the Government also participates in the Stock Market by issuing debentures,
stock or bonds.

Debenture is a type of debt instrument unsecured by collateral. it is basically a document

detailing the terms of a loan agreement where the lender has not asked for security such as land
from the borrower. By its nature, a debenture relies majorly on the rapport, creditworthiness and
long term reputation of the issuer.

Stock as earlier noted, refers to the issued shares of a company. As such, government can decide
to sell its stock in a company on the Stock market.

Bond is a fixed income instrument that represents a loan made by an investor to a borrower.
Whenever Government needs to raise money to carry out projects such as road construction,
building schools etc., it shall issue bonds to the public to buy and after a certain and defined
period of time, the government pays back the money.

Through the above-mentioned mechanisms, the Government is able to play its role in the Stock
Market.

CAPITAL MARKETS AUTHORITY

The government delegated its role of regulating the Stock Market to the Capital Markets
Authority by virtual of the Capital Markets Authority Act cap 84.

Under this act, the Authority is established as a body corporate with perpetual succession and a
common seal and is capable, in its corporate name, of suing and being sued.10 It operates semi-
autonomously from government.

In a nutshell, the Authority regulates, supervises and enforces laws governing the Stock Market
on behalf of Government.

All the major players on the stock market including; stock exchanges, investment advisers,
registrars, securities brokers or dealers, and their agents must obtain licenses from the Authority
so as to operate. Apart from issuing licenses, the Authority also regularly issues rules governing
a lot of aspects on the Stock market such as rules governing listing of companies, issuance of
prospectuses, cross border introductions among others.

The Authority has also played a role in protecting the interests of investors on the Stock market
and the Public at large.

STOCK EXCHANGE

The major Stock Exchange in Uganda is the Uganda Securities Exchange.

The Uganda Securities Exchange (USE) was established in 1997 as a company limited by
guarantee. It was licensed to operate as an approved Stock Exchange in June 1997 by the Capital
Markets Authority.
The Exchange is a central place for trading of securities by licensed brokers/dealers. It provides a
credible platform for raising of capital; through the issuance of appropriate debt, equity and other
instruments to the investing public.

In this way, the Exchange provides essential facilities for the private sector and Government to
raise money for business expansion and enables the public to own shares in companies listed on
the Exchange. As of June 2020, there are 17 Companies listed on the Uganda Securities
Exchange with a combined Market Capitalization of about UGX 19 Trillion only.

The USE operates in close association with the Dares Salaam Stock Exchange in Tanzania, the
Rwanda Stock Exchange, and the Nairobi Stock Exchange in Kenya. According to published
reports in 2013, there were plans to integrate the four exchanges to form a single East African
bourse.

A number of Companies have also been able to cross list on the USE and other nation’s Stock
Exchanges such as Nation Media Group that is listed on both the USE and the Nairobi Stock
Exchange.

BROKERS/MIDDLE AGENTS

The middle agents in the Stock Markets form a link between the Public and the Listed
Companies as well as with the USE. They help the Public to buy and sell off shares. They
include Investment Advisors, Stock brokers, Fund Managers among others.

It is the Brokers that advise you when it’s time to buy or when it’s time to sell. The Brokers also
play a key role in updating you when dividends16 have been paid out by a company in which
you purchased shares. Other middlemen such as Fund Managers hold particular sums of monies
on behalf of the investors and study the market on their behalf so as to invest in a business when
the time is right and sell off a business when they believe that it is no longer profitable.

More often than not, Brokers never directly own securities in a Stock Market but only act as a
conduit that connects the Buyer, the Seller and the Stock Exchange. We have a number of
licensed brokerage firms in Uganda today such as Crested Capital, UAP Financial Services
Limited, Stanlib among others.
PUBLIC COMPANIES

Briefly, a company is an entity formed and registered as a company under the Companies Act
2012. A company is separate from its members and shareholders and can sue and be sued in its
own name (Corporate Personality). It can also outlive its members, something commonly
referred to as Perpetual Succession.

A company may be limited by shares where members are only liable up to the amount unpaid on
the shares issued to them or it may be limited by guarantee where members are only liable to the
amount they guarantee to pay in the event that the company is winding up or it may be unlimited
(these are very rare).

A company may also be Private where it restricts the number of its members to not more than
100, restricts the right to transfer its shares and other securities and prohibits any invitation to the
public to subscribe for any shares or debentures of the company.

A company may also be Public where it has no restrictions on the transfer of its securities and is
permitted to invite the public to subscribe for any shares or debentures of the company. A public
company must eventually list on the Stock Exchange if it requires to raise capital much faster.

So let’s say there is a company called Gentle Hotels Co. Limited, a private company limited by
shares controlled by about 5 shareholders. The company has one hotel in Kampala that has been
highly profitable and it would like to set up a 3 more so as to boost its profits.

But the company lacks the money to do so and no bank is willing to lend it the money for such a
large venture as it lacks the security for the loan. The shareholders decide to raise money through
the Public by taking the company public and inviting the public to subscribe to it for its shares.
This is how they would do it.

Step 1: Re-registration of the Private Company limited by shares as a Public Company limited
by shares

The Company shall pass a special resolution20 stating that it should be re- registered as a Public
Company and make a formal application to the Registrar of Companies.
The Application must be in form 20 of the Companies Regulations 2016 and it is supported by

section 5 of the Companies Act. A special resolution is one supported by at least 75% of the
shareholding of the Company

a) a printed copy of the memorandum and articles as altered in accordance with the
resolution;
b) a copy of a written statement by the company’s auditors that in their opinion the relevant
balance sheet shows that at the balance sheet date the amount of the company’s net assets
was not less than the aggregate of its called-up share capital and distributable reserves;
c) a copy of the relevant balance sheet; and
d) a statutory declaration in form 3 of the company’s regulations by a director or secretary
of the company stating that the special resolution required has been passed and that
between the date of the balance sheet and that of the application for re-registration, there
has been no change in the company’s financial position that has resulted in the amount of
its net assets becoming less than the aggregate of its called-up share capital and
distributable reserves.

The Registrar, upon satisfying himself/herself that the Company has fulfilled the requisite
conditions noted above, shall issue a Certificate of Incorporation stating that the company is a
Public Company.

Step 2; Preparing the Prospectus and Supporting Documents

Now that General Hotels Co. Ltd is a Public Company, it shall be allowed to call on the Public to
subscribe to its shares.

The first thing it shall do is prepare a document known as a Prospectus. A prospectus is a

document or a publication by or on behalf of a corporation containing information on the
character, nature, and purpose of an issue of shares, debentures, or other corporate Securities that
extends an invitation to the public to purchase the securities.

The Prospectus shall be issued to the Uganda Securities Exchange for approval and is part of the
prerequisite to being listed(included) on the Exchange. The Prospectus is usually broad and
extremely detailed, it must indicate the number of shares being issued, the rights that shall accrue
to the issuer of those shares, the legal status of the company, any material litigation affecting any
of the directors of the company, any pending debts of the company among others.

It is accompanied by supporting documents such as the statement of financial position of the

company, documents representing the expected future earnings of the business and how they
may be affected by fluctuations in the market and exchange rates. The Company must also obtain
approval from the CMA and attach it to the Application. This process is very complex and most
Companies engage Brokers and sound Legal practitioners when preparing this information.

Step 3 Listing securities on the USE

Once the information has been prepared or during the preparation of the information, the
Company shall appoint a Sponsoring Broker23.

The Sponsoring broker acts as the main middle agent between the Company and Stock
Exchange. This broker updates the Exchange on the progress of the listing exercise on behalf of
the company.

The Sponsoring Broker is the one that presents the application for admission on the Stock
Exchange on behalf of the Company.

After issue of the shares, the Sponsoring broker is tasked with the duty of giving a return of the
total subscriptions to the Exchange.

According to the USE Listing Rules, all correspondences between the Company and the
Exchange must be done through the Sponsoring Broker and this broker shall attend all meetings
between the two. As such, its role is vital to the listing process.

Having prepared the prospectus and accompanying documents as well as having appointed a
Sponsoring Broker, the Gentle Hotels Co. Ltd must produce the following information to USE in
addition so as to be listed;

a) Written approval from the CMA

 b) A declaration by the Directors of the Company that they have appropriate expertise and
experience for the management of the Issuer’s business
c) All necessary financial information

THE PUBLIC

The Public buys and sells shares to complete the cycle. The Public may include individuals and
corporate bodies at large and it is these players that Public Companies target as the source of the
Capital being raised.

WHY MORE UGANDAN COMPANIES SHOULD GO PUBLIC

1) Access to Capital for Growth

Most companies reach a level wherein additional capital is required to be infused to fund the
company's growth / expansion plans. Going public is thereby a method of overcoming these
constraints. By listing on a Stock Exchange, the company increases shareholder base and
enhances credibility. As was the case for Gentle Hotels Co. Ltd, listing helped the Company
raise the necessary capital to grow.

2) Enhanced Visibility and Credibility

Going public improves company’s visibility and credibility among institutions and the investing
public due to complying with various regulatory norms and ensuring transparency while
conducting operations. When a Company is listed, the Public can know how it’s performing and
how it has overcome challenges which creates a sense of trust.

Listing stimulates liquidity, giving shareholders the opportunity to realize the value of their
investments. It allows shareholders to transact in the shares of the company, sharing risks as well
as benefitting from any increase in the organizational value.

3) Increase in employee morale and providing possible employment opportunities and

benefits
Going public increases visibility and improves public perception of the organization, thereby
increasing employee value and morale. It may also lead to hiring of new staff and may facilitate
stock-based payments such as ESOPs etc.

4) Transparency and efficiency

Listing brings transparency and efficiency in the overall operations of the company. The board
and management team of a listed company has accountability towards it shareholders. Further,
listed companies also need to ensure timely compliance by providing information / disclosure to
the Exchange / shareholders as laid down in the Listing Agreement or applicable guidelines.

5) Business sustainability and continuity

Going public institutes good corporate governance and sound business processes that assist in
enhancing the company's longer-term prospects and survival.

6) Broader diversification of financing options

Listed companies enjoy a wider range of financing options and access to a diverse global
investor base and large pool of public funds to finance growth. These companies are also able to
use their quoted shares as currency to support acquisition and growth objectives.

WHY MOST LOCAL COMPANIES ARE NOT TRADING ON THE UGANDA

SECURITIES EXCHANGE

1. Instability of the Stock Markets

The undeniable truth is that the stock market is a risk venture where prices of stock may fall as
quickly as they rise. There is a likely hood that shares you bought at UGX 100/- per share in the
morning may be worth about UGX 20/- per share later that afternoon.

These fluctuations are triggered by a number of reasons such as;

  Company performance; if the company is performing well and posting profits, the value
of its stock shall go up as there shall be a high demand for its shares. The opposite is also
true as poor performing companies shall see a drop in their stock value since most people
will be selling on the cheap to cut their losses.
 Government policies; Sometimes Governments enact laws that may favor or not favor
Public Companies. For example, a law banning advertising by cigarette companies and
banning of smoking in Public areas had a direct impact on the profitability of a listed
Company that deals in the cigarette business. This adversely affected its profitability and
led to a number of its shareholders selling off their stock in the company.
 Political Stability; civil unrest means drop in share prices, whereas peace and prosperity
leads to rise in share prices.

This creates a challenge for many investors and they end up investing their money in safer
options such as land and other fixed assets.

2. Family Constraints

Another obvious pointer is the fact that most local Companies are family owned. Therefore, the
family is less willing to give up its stake to the members of the Public and would rather keep it
for its descendants to inherit.

3. Insufficient knowledge about how the Stock Market works.

Most Local Companies are not aware of the workings of the Public Company law realm. Even in
the face of impending collapse, they hardly consider raising capital through listing.

Many believe that only well to do and very large corporations can list which is a misconception
as the USE does also cater for Small to Medium size entities through its Alternative Investment
Market Segment (AIMS).

As such, the CMA, USE and the Middle Agents should do more in terms of sensitization of the
public about the workings of the Stock Market.

4. Complexity of the Listing Process

As earlier noted, the process of listing is stringent, complex and involves a large number of
regulators. On top of this, most local companies are not willing to expose their balance sheets to
the rest of the world which is an unqualified requirement of listing. As such, most companies end
up staying private so that they may transact, whether legally or unethically but without the need
to declare these actions to the Public.

CONCLUSION

Ever since the formation of the USE in the late 90’s, there has been a steady growth in the
Capital Markets realm in Uganda. A number of large companies such as Stanbic Bank, British
American Tobacco Uganda and UMEME have floated their shares on the Securities Exchange.

However, since the UMEME listing in 2012, interest on the market has taken a huge hit with
Uganda having to wait over 5 years for the next IPO which came with CIPLA (Quality
Chemicals) going public.

In fact, some large broker dealers such as MBEA Brokerage Services, Renaissance Capital and,
most recently, African Alliance, have exited the market, complaining of a slump in trades and
revenues.

There have however been some positive strides in the sector especially with the introduction of
the Securities Central Depository System that has automated the trading system in Uganda.

The USE has also introduced an online customer self-service portal that it has coined “Easy
Portal”. According to the USE website, the portal ensures that investors take charge of their
portfolio by personally monitoring their accounts instead of going to or calling the brokers for
portfolio updates. It is a “Do it yourself” portfolio management that allows investors to monitor
their investment portfolios anywhere, anytime.