12/15/2023

WORKSHOP TWO,
PRESENTATION, CORPORATE
AND COMMERCIAL PRACTICE,
WEEK TWO

1
 TASK 1
Brief facts
Imara Ventures (the company) is an existing Telecommunications company in Uganda
dealing in both voice and internet services. The Company shareholders have approached your

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firm and are desirous of undertaking two major transactions. Under the first transaction
(Project Link), they are interested in raising funds to the tune of United States Dollars Ten
Million (USD 10,000,000) from a Mauritius Venture Capital Fund, Otis Capital Partners for
working capital. The anticipated close of this financing round is 31 st December 2023. Under
the second transaction (Project Mega), they are interested in “taking the company public” to
comply with the licensing requirements of the Uganda Communications Commission by 31 st
December 2024.

Issue
1. What are the procedural steps of venture capital financing as a form of external corporate
finance to Imara Ventures?
2. What are the pros and cons of venture capital and private equity as methods of corporate 2
finance?
3. What are the salient aspects of Simple Agreements for Equity (SAFEs) and Convertible
Notes as financial instruments in venture capital transactions?
 Task 1 (1)
The procedural steps of venture capital financing as a form of external corporate finance.
Ways of raising External capital
•

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Debt Financing- Borrowing (Security is provided)
• Equity Financing- Money is got from investors. An investor looks at a business’s
financial standing, does it look stable and can do better if money is given to it? Then it
proceeds to give it money through an instrument.
• Mezzanine financing- Hybrid of debt and equity financing.

Equity financing
• Involves selling a portion of a company's equity in return for capital.
• There is no obligation to repay the money acquired through it.
• Equity financing places no additional financial burden on the company. Since there are
no required monthly payments
• Owners would have to give up some ownership powers 3
• Reduce their share of future profits and decision-making power.
Some sources of equity financing are:
• Angel investors
• Venture capital firms

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• Private Equity
• Listing on an exchange with an initial public offering (IPO)

Debt financing
• Involves borrowing money and paying it back with interest. The most common form
of debt financing is a loan.
• The lender has no control over your business. Once you pay the loan back, your
relationship with the financier ends.
• Some sources of debt financing are:
• Bank loans
• Personal loans, usually from a family or friend 4
• Other lending services
Venture Capital
The purpose of Venture capital is to provide capital to new, young, and growing businesses.
These are institutional investors who provide funding to companies that they believe have long-
term growth.

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Procedural Steps for Venture Capital Financing:
1. Negotiating the financial arrangement
2. Valuation: Company valuation is the assessment of a company’s value. A Venture Capital
firm needs to know the value of the company in which it is investing to decide to buy either
newly issued shares or already existing ones.
3. Offer letter. After agreeing on a valuation, the manager will give the entrepreneur an offer
letter, detailing their proposed investment. The document summarizes the interim terms of
the deal, subject to due diligence. Once the entrepreneur has accepted the letter, due
diligence, and final negotiations can take place.
4. Due diligence. Venture Capital firms must ensure they have exercised due diligence before
they invest in the venture. This involves audits by lawyers and other consultants of both the
company and the proposal. Further negotiations or changes to the terms of the deal may
follow, depending on the results. 5
5. Final negotiations. During final negotiations, the terms of the deal are agreed and signed
off..
5. At this stage, the entrepreneur and their senior management team can negotiate their equity
stake in the company.
6. Investment deal documentation. Lawyers for the parties will draw up acquisition
documents, detailing the terms of the negotiated contracts according to legal requirements. These
include:

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 Shareholders' agreement - the rights and obligations of each party
 Investment protocol - share prices and numbers of shares
 Changes to company statutes
 Warranty letters
7. Signing: All parties should then sign the final agreement. At this point, the capital funds will
be released to the company

6
 Task 1 (2)
Pros and Cons of Venture Capital and Private Equity
Venture capital (VC) and private equity (PE) are both forms of investment that involve
providing capital to companies in exchange for ownership or a stake in the business. While

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they share some similarities, they also have distinct characteristics.

Venture Capital:
Pros:
1. Early-Stage Funding: VC is often associated with early-stage startups, providing
them with the capital needed to develop and grow their businesses.
2. Risk Sharing: Venture capitalists share the risk with the startup, as their returns are
tied to the success of the invested companies.
3. Innovation: VC funding is crucial for fostering innovation by supporting high-risk,
high-reward projects that traditional lenders might be unwilling to finance.
4. Speed of Funding: VC deals can be executed relatively quickly compared to some 7
other forms of financing, facilitating rapid growth.
Cons:
1. Loss of Control: Entrepreneurs may have to cede a significant portion of ownership
and decision-making control to venture capitalists.
2. High Expectations for Growth: VCs typically expect high returns on their

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investments, putting pressure on startups to achieve rapid and significant growth.
3. Valuation Pressures: Startups may face pressure to achieve high valuations in
subsequent funding rounds, which can lead to inflated expectations and challenges in
meeting them.
4. Exit Pressures: VCs typically have a fixed investment horizon and seek exits
through IPOs or acquisitions, which may not align with the long-term goals of some
entrepreneurs.
Private Equity:
 By definition, private equity is an asset class in which financial buyers purchase
stakes in companies that are not publicly traded.
 Commonly associated with institutional investors – catering the requirement of
equity capital by companies. 8
 Investment strategy that involves the purchase of equity or equity linked securities in
a company
  Comes in at the growth stage of a firm and provides the additional capital needed
to take the company to the next level
 Provides shareholder stability and support for execution of the Company’s
business plan.

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Pros:
1. Operational Improvement: Private equity firms often bring operational expertise to
portfolio companies, helping them improve efficiency and profitability.
2. Longer Investment Horizon: Private equity investors typically have a longer
investment horizon compared to VCs, allowing for a more patient approach to value
creation.
3. Diversification: Private equity can provide diversification for investors' portfolios, as it
often involves investments in established companies in various industries.
4. Stable Returns: Private equity investments may offer more stable and predictable
returns compared to the potentially volatile returns associated with early-stage VC
investments.
Cons: 9
1. Lack of Liquidity: Investments in private equity are illiquid, meaning investors may not be
able to easily sell their stakes in portfolio companies.
2. High Entry Barriers: Private equity investments often require a significant amount of
3. Limited Transparency: Private equity investments can lack the transparency associated with
publicly traded companies, making it challenging for investors to assess the true value of their
holdings.
4. Exit Challenges: Finding suitable exit opportunities, such as selling the portfolio company or

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taking it public, can be challenging depending on market conditions.

Task 1 (3)
Salient aspects of;
i. Simple Agreements for Equity.
A Simple Agreement for Equity (SAFE) is a legal document that allows an investor to
invest in a startup in exchange for the right to receive equity in the future, when a priced
round of financing occurs.

Features of the Agreement:

 Investment: The investor agrees to invest a specified amount of money in the startup
in exchange for future equity.
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 Valuation Cap: The SAFE may include a valuation cap, which sets the maximum
valuation at which the investment converts into equity.
  Conversion Trigger: The SAFE converts into equity upon the occurrence of specific
events, such as a qualified financing round, merger, acquisition, or other agreed-upon
triggering events.
 Conversion Terms: The conversion may occur at a discount rate or at the valuation
cap, whichever is more favorable to the investor.

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 Rights of Investor: Until conversion, the investor typically has no voting or
management rights in the startup
 Dilution Protection: The agreement may include provisions to protect the investor
from dilution in the case of subsequent equity issuances at lower valuations.
 Governing Law: The agreement specifies the jurisdiction and laws under which it is
governed.

i. Convertible Notes.
Convertible notes are a form of short-term debt that can convert into equity under
predefined conditions. They are commonly used by startups to raise capital during early
stages of development when it might be challenging to determine the company's
valuation.
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Features of the Agreement:
1. Debt Instrument: Convertible notes are initially structured as debt. Investors lend
money to the company, and in return, they receive promissory notes that outline the
terms of the loan, such as the interest rate and maturity date.

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2. Conversion into Equity: The key feature of convertible notes is the option to convert
the debt into equity (e.g., preferred stock) at a later date. This conversion usually
occurs when the company undergoes a subsequent financing round, typically led by
venture capitalists or angel investors.
3. Conversion Trigger: The conversion is triggered by specific events, typically the
occurrence of a qualified financing round. The conversion is usually based on a
discount to the valuation determined in the subsequent round or a predetermined
valuation cap.
4. Discount Rate: Convertible notes often include a discount rate, which allows
noteholders to convert their debt into equity at a lower price per share than the price
offered to new investors in the subsequent financing round. This provides early
investors with a reward for taking the risk at an earlier stage.
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5. Valuation Cap: Some convertible notes include a valuation cap, which sets a maximum
valuation at which the debt can convert into equity. This protects early investors from
excessive dilution in case the company's valuation skyrockets in the subsequent round.
6. Interest Rate: Convertible notes may accrue interest over time, but instead of being paid in

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cash, the interest is typically added to the principal amount and converted into equity when
the notes convert.
7. Maturity Date: Convertible notes have a maturity date, after which the company is
expected to repay the principal and any accrued interest if the conversion hasn't occurred by
that time.

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 Task 2 (1)

As a Legal Counsel, advice on the due diligence aspects is available to a prospective

financier in a venture capitalist transaction

Legal counsel would conduct the following due diligence steps on Imara Ventures (the
Company). The purpose of undertaking these steps is to check the compliance of the Company
and to check for any potential risks that the venture capitalist should be aware of. An extensive
review is necessary for assessing the company's financial statements, legal structure, contracts,
compliance with regulations, intellectual property rights, market positioning, management
team evaluation, and risk analysis. Understanding these facets helps gauge the company's
stability, growth potential, and potential risks.
It involves an exhaustive investigation into various aspects of the target company to ascertain
its overall health, potential risks, and growth prospects, these include
a) Capital Structure and Records
Under this is I would;
 Confirm whether the company is registered with the Registrar of Companies, upon payment
of the prescribed fee per section 264(1)(a) of the Companies Act 2012 (the “Act”).
 Inspect the certified copy of the certificate of incorporation per section 264(1)(b) of the Act.
section 22(1) of the Act, a certificate of incorporation is conclusive evidence that all the
requirements in respect of registration and of matters precedent and incidental to registration
have been compiled with and that the association is a company authorized to be registered
and duly registered under the Act.
 Confirm whether the company has other charges over the property it is intending to use as
security. Under section 106 (1) of the Act, it is the duty of a company to send to the
Registrar for registration the particulars of every charge created by the company and under
section 113(1) of the Act, a limited liability company shall keep, at the registered office of
the company a register of charges and enter in it all charges specifically affecting the
property of the company.
 Confirm whether the company has a registered office per the requirements of section
115(1) of the Act. section 264(1)(a), where the lender inspects the documents or the
company file kept by the Registrar of companies to gain access to the notification of the
situation of the registered office and the registered postal address of the company per
section 116.
 Confirm directors of the company i.e. by inspecting the register of directors and
secretaries kept by the company in accordance with the provisions of section 228 of the
Act.
 Confirm whether there is authorization from the company board of directors by way of
board resolution to get into a venture capital investment transaction. section 153 of the
Act, by inspecting of the minute books containing the minutes of proceeding and in the
circumstances the minutes of the board meeting in which the board resolution
authorizing the venture capital investment transaction was passed.
 Inspect the documents or the company file kept by the registrar of companies in
accordance with the provisions of section 264(1) of the Act, to establish the nominal
share capital of the company.
b) Shareholding and share holders
Under this, I would review;
 Details of the Company’s issued share capital, including the class and denomination of
such shares, and whether they are fully paid up.
 The name(s) and address(es) of each of the Company’s registered shareholders and (if
different) the beneficial owner of any shares in the Company, including details of the
number and class of shares held by each of them.
 Details of any rights of pre-emption on the transfer of the Company’s share capital and
any approvals or consents required for the transfer of such shares.
 Copies of any shareholders’ agreements. Share subscriptions agreements or other relevant
agreements regulating the relationship between the shareholders of the Company.
 Details of any redemption or buy back of shares
a) Liabilities
Under this would I review;
 Details of all the Company’s bank accounts, and copies of all related documents
(including copies of the current bank mandates).
 Details of, and copies of all documents relating to debentures, mortgages, charges or other
security.
 Details of, and copies of all documents relating to, all outstanding loan stock or loan notes
issued by the Company.
 Details of any loans or other indebtedness granted by the Company to, or to the Company
by, any director of the Company.
a) Commercial Agreements
Under this I would review;
 Details of, and copies of, all documents relating to any agreement or contract which is
material to the business of the Company.
 Details of all credit arrangements in favor of any customer or client of the Company.
b) Intellectual Property
• Under this I would review;
Details of and copies of documents relating to, all intellectual property rights, owned, used,
enjoyed, exploited or held for use by the Company (IPR), and details of any intellectual
property rights that are required to fulfil any of the Company’s contracts
c) Insurance
Under this I would review;
• Details of, and copies of documents relating to, the Company’s insurance arrangements,
including details of the nature and amount of cover, name and address of the insurer, annual
premiums, renewal date and confirmation that such insurance arrangements will not be
affected by the Transaction
d) Audited financial statements or financial due deligence
Under this I would;
 This involves a meticulous examination of financial statements, revenue streams,
expenses, profit margins, cash flow, and balance sheets. The goal is to ensure the accuracy
of financial information and to identify any discrepancies or red flags.
 Inspect the audited books of account kept by the company in accordance with the
provisions of section 154(1) Companies Act, 2012.

e) Litigation
Under this I would review;
 Details of, and copies of all documents relating to, any ongoing or threatened litigation,
arbitration, mediation or similar proceedings or disputes involving or otherwise affecting
the Company.
f) Market and Industry Analysis.
 Understanding the market landscape, industry trends, competition, customer base, and
growth potential is essential. This analysis helps gauge the company's position within the
industry and its potential for sustained growth.
g) Management and Team Evaluation:
 Evaluating the management team, their experience, expertise, and track record is vital.
Assessing the team's ability to execute plans and strategies is crucial for the success of the
investment.
h) Operational Due Diligence.
• Examining the operational aspects, including supply chain management, technology
infrastructure, scalability, and operational efficiency, helps in understanding the company's
capabilities to sustain and expand its operations.
i) Risk Assessment.
Identifying and evaluating various risks, such as market risks, regulatory risks, financial risks,
and strategic risks, is crucial. Understanding these risks helps in devising strategies to mitigate
or manage them effectively
 Task 2 (2)
Financing forms of Expansion:
Given the company's stabilized cash flow but existing senior debt, it can explore various
options for expansion. Among them include;
1. MEZZANINE FINANCING
Mezzanine financing could be considered appropriate, because it sits between equity and debt,
offering flexible repayment terms and potentially allowing for further growth without diluting
current equity. Mezzanine financing occupies a unique space in the realm of corporate finance,
blending elements of debt and equity to provide companies with flexible capital solutions for
expansion, acquisitions, or restructuring. Here are some key aspects of mezzanine financing:
Position in the Capital Structure.
Mezzanine financing represents a layer between senior debt and equity in the company's capital
structure. It often takes the form of subordinated debt or preferred equity. This means that in the
event of bankruptcy or liquidation, mezzanine providers have a claim on assets after senior debt
holders but before equity investors.
 Flexible Terms
Mezzanine financing offers flexibility in terms compared to traditional bank loans. It
often involves higher interest rates and may include an equity kicker, giving the lender an
option to convert the debt into equity, providing potential upside beyond the interest
payments.
Debt with Equity-Like Features.
Mezzanine financing behaves more like equity in terms of risk, given its subordinated position
in the capital structure. While it is technically debt, it has characteristics such as fewer or no
collateral requirements, longer repayment terms, and sometimes payment-in-kind (PIK) interest,
where interest payments can be made with additional debt instead of cash.
Use in Expansion.
Companies with stable cash flows seeking to expand operations, undertake acquisitions, or
pursue growth opportunities often opt for mezzanine financing. This form of funding allows
them to access significant capital without immediately diluting existing ownership stakes
Risk and Returns
Mezzanine lenders assume higher risks compared to senior debt providers due to their
subordinate position but seek higher returns compared to traditional lenders. The potential
for equity-like returns through equity kickers or conversion options compensates for the
increased risk.
Negotiation and Structuring.
Mezzanine financing terms are often negotiated individually, tailored to the specific needs
of the company and the risk appetite of the lender. These negotiations involve discussions
around interest rates, repayment terms, potential equity conversion, and covenants.
Mezzanine financing provides an attractive option for companies with stable cash flows
and a need for substantial capital to expand or undertake strategic initiatives. It typically
involves subordinated debt or preferred equity, providing funds without diluting existing
equity. It often comes with higher interest rates and potential equity upside, making it
suitable for companies aiming for expansion with stable cash flows.
 ALTERNATIVELY, THERE EXIST ALSO JOINT VENTURES
Joint Ventures that is, collaborating with strategic partners through joint ventures can be
advantageous as It allows access to shared resources, technology, markets, or expertise,
minimizing financial risks associated with independent expansion. they enable companies to
pool strengths and capabilities for mutual growth while sharing the associated costs and risks.

GROWTH EQUITY FINANCING.

Seeking growth equity investors can also be considered. Unlike traditional venture capital firms
that focus on early-stage companies, growth equity investors provide capital to established
companies looking to scale. This form of financing allows for expansion without taking on
additional debt and offers expertise and resources to facilitate growth.
Each option comes with its own set of advantages and considerations. Therefore, the choice
depends on the company's specific growth goals, risk tolerance, and desired balance between
ownership, control, and financial leverage
 The Mezzanine is the most appropriate in the circumstance because of its advantages.
These include
i. Mezzanine financing is a way for companies to raise funds for specific projects or
to aid with an acquisition through a hybrid of debt and equity financing.
ii. Mezzanine loans are most commonly utilized in the expansion of established
companies rather than startup company.
iii. Mezzanine financing permits a business to have more capital and it increases its
returns on equity.
iv. Mezzanine financing helps a company to fund specific growth projects or to help
with acquisitions having short to medium-term horizons.
v. In mezzanine financing, there is no amortization of loan principal.
vi. Under mezzanine financing, the interest paid is tax-deductible business expense
which reduces the actual cost of the debt.
 Task 2 (3)
Assuming the company wanted to issue corporate bonds instead of listing, how different
would your advice be
CORPORATE BONDS VS. LISTING:
Corporate Bonds.
a) Issuance Process.
Issuing corporate bonds involves a direct transaction between the company and investors.
The company raises capital by offering bonds to investors, detailing terms such as interest
rates, maturity dates, and any attached covenants. The issuance process for corporate bonds
involves several steps, that is,
i. Determine Financing Needs,
The company assesses its capital requirements, considering factors such as expansion
plans, operational needs, debt refinancing, or strategic initiatives.
ii. Structuring the Bond Offering,
Determine the characteristics of the bond, including the principal amount, interest rate
(coupon), maturity date, frequency of interest payments, and any attached covenants
(conditions imposed on the issuer).
iii. Engage Underwriters or Advisors,
Companies often seek the assistance of investment banks or financial advisors to help
structure the bond offering, determine market conditions, and assist in the sale of the bonds
to investors.
iv. Registration and Documentation,
Companies might need to register the bond offering with relevant regulatory bodies,
ensuring compliance with securities laws. This process involves preparing a prospectus or
offering memorandum detailing the terms of the bond and the company's financial
information for potential investors.
v. Marketing and Roadshows,
Promoting the bond offering involves marketing efforts to potential investors through
roadshows, presentations, and meetings. This aims to generate interest and attract investors
to subscribe to the bond offering.
vi. Pricing,
Determining the price or yield at which the bonds will be offered to investors is a critical
step. This pricing depends on market conditions, prevailing interest rates, creditworthiness
of the issuer, and demand from investors.
vii. Closing the Offering,
Once the pricing is set and investors subscribe to the bonds, the offering closes. The
company receives the proceeds from the bond issuance, and the bonds are officially issued
to the investors.
viii. Post-Issuance Compliance,
After the issuance, the company must comply with the agreed-upon terms, making periodic
interest payments to bondholders, providing financial reports, and adhering to any
covenants specified in the bond agreement.
Throughout the issuance process, companies need to work closely with legal counsel,
underwriters, and financial advisors to ensure compliance with regulatory requirements,
accurately assess market conditions, and effectively market the bond offering to potential
investors
a) Regulatory Compliance. Companies issuing corporate bonds must comply with securities
regulations and may need to register the bond offering with relevant regulatory bodies.
However, the compliance requirements are typically less stringent compared to the process
of listing on a public stock exchange.
Regulatory obligations for companies issuing corporate bonds involve compliance with
various laws and regulations, ensuring transparency, disclosure, and protection for
investors. These include,
i. Securities Regulations: Companies issuing bonds must adhere to securities laws within the
jurisdictions where the bonds are offered. These laws govern the issuance, sale, and trading
of securities, ensuring fair and transparent capital markets.
ii. Disclosure Requirements Issuers need to provide comprehensive and accurate disclosures
about their financial health, operations, risks, and prospects. This includes preparing
prospectuses or offering memoranda that detail information relevant to potential investors.
iii. Financial Reporting, Issuers are obligated to provide periodic financial reports to
bondholders and regulatory authorities. These reports include audited financial statements,
updates on material events, and other relevant information.
Others include compliance with listing standards, fair disclosure practices, convenant
compliance, investor protection among others.
Regulatory bodies oversee compliance with securities laws, periodically reviewing filings and
disclosures to ensure that issuers meet their obligations and maintain market integrity.
Therefore, obligations aim to foster transparency, protect investors, and maintain the integrity
and efficiency of the capital markets in which corporate bonds are traded. Companies issuing
bonds must diligently adhere to these regulations to meet their obligations and maintain trust
among investors
c) Control and Ownership.
Issuing corporate bonds doesn't dilute the ownership or control of existing shareholders.
Bondholders are creditors who receive interest payments and repayment of principal, but they
don't hold voting rights or ownership stakes in the company. Interest Payments Companies
issuing bonds are obligated to make periodic interest payments to bondholders, which is a fixed
cost irrespective of the company's performance. Failure to meet these payments can lead to
default.

Conclusion;
Therefore, opting for corporate bonds instead of a public listing presents a different avenue for
raising capital. If the company chooses this route, it would entail a different set of
considerations. The advice shifts towards conducting credit analysis, determining bond terms
(interest rates, maturity, covenants), and complying with securities regulations for bond
issuance. This approach avoids the extensive compliance and regulatory obligations associated
with going public, maintaining greater control over the company's operations and decision-
making processes.
 TASK 3 (1)

Issues

What are the legal requirements and the necessary steps Imara Ventures should take in order to
get listed on the Uganda Securities Exchange (USE)?

Law Applicable

The Capital Markets Authority Act, Cap 84 (Herein referred to as “CMA Act”)
The Uganda Securities Exchange Listing Rules, 2021 (Herein referred to as “Listing
Rules”)
The Capital Markets Authority (Amendment) Act, 2016
The Uganda Securities Exchange Fees Charges & Penalties Rules, 2021 (Updated
February 2023)
The Growth Enterprise Markets Segment Rules, 2012

Resolution of the Issue

Listing of a company is the process by which a company issues stock shares to the public
through a stock exchange, with each share representing a sliver of ownership of the company.
Those shares can then be bought and sold by investors, rising or falling in value according to
demand.
The purpose for listing a company on an exchange is to raise money. The sale of stock on the
open market is one way to raise a great deal of money fast. Listing can also greatly enhance the
visibility of the company by drawing the attention of investors and the financial media. It also
gives a company a way to reward its employees, through stock options.

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Trading securities is called the Uganda Securities Exchange which is regulated by the Capital
Markets Authority (CMA). (Section 24)

Securities on the other hand are defined under Section 1 (hh) to mean—

(i) debentures, stock, or bonds issued or proposed to be issued by a government;

(ii) debentures, stocks, shares, bonds or notes issued or proposed to be issued by a body
corporate;
(iii) any right, warrant, option, or futures in respect of any debenture, stocks, shares,
bonds,
notes or in respect of commodities; or
(iv) any instruments commonly known as securities, but does not include—
(a) bills of exchange;
(b) promissory notes; or 32
(c) certificates of deposit issued by a bank or financial institution licensed under the Bank
of Uganda Act.
Therefore, for Imara Ventures to get listed, it must apply to the USE to be listed, bearing in
mind that each exchange sets its requirements, which typically include minimum levels of cash
flow and company assets. The company also must adhere to the exchange's standards of
corporate governance and once it is listed, it must continue to meet those qualifications or risk

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being delisted.

The steps to take according to the USE Listing Profile: Steps on how to Get Listed Booklet
to successfully get Imara Ventures listed are as stated below.

Preliminary step:

First ensure that the company should be a company limited by shares bearing the legal identity
of a Public limited liability company, a or if a foreign company, it is registered under the
relevant provisions of the Companies Act (Rule 32 (1) of the USE Listing Rules, 2021).

STEP 1: Appoint Sponsoring Brokers. These may be underwriters, Stockbrokers, Investment

Advisers, Reporting Accountants, Lawyers, and any other experts (Rule 10 of the USE Listing
Rules). The company shall inform the Exchange of the appointment in writing. 33
STEP 2: Determine the amount of stock to be sold and whether the owners will sell some of
their shares and drafting of a company Prospectus to that effect.
STEP 3: Apply to the Capital Markets Authority to initiate the IPO process. This involves
submitting of the Prospectus and disclosing detailed information about the company, its
officers, and directors as well as financial statements certified by an independent certified
public accountant.

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STEP 4: Upon approval by the CMA, the company can then proceed to apply to the USE for
listing.

Section 4 of the Capital Markets Authority (Amendment) Act, 2016 provides that the
Application must be submitted with a Prospectus. A written approval from the CMA should be
attached (Rule 16 of the Listing Rules).

Section 29C of the Capital Markets Authority (Amendment) Act, 2016 and Rule 24 of the
Listing Rules provides that no securities shall be approved for listing on the Exchange without
the written approval of the Capital Markets Authority.

STEP 5: Lodge the Prospectus approved by CMA and Information Memorandum with USE and
Apply to be listed.

Rule 14 of the Listing Rules provides that an Applicant without equity shares already listed on 34
the Exchange may bring securities to listing by any of the following methods:

a) An offer for sale;

c) An offer for subscription;
d) An introduction; or
e) Such offer method as may be accepted by the Exchange either generally or in any particular
circumstances

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In Imara Ventures’ case, we will need to apply for a listing on the MIMS. This is because the
MIMS is the main market for established and large companies looking to raise funding. The
eligibility criterion on this segment is stringent and companies on this segment must have a
minimum share capital of UGX 1 billion and net assets of UGX 2 billion and Net Assets
Immediately before the IPO not less than UGX 2 billion according to the USE Listing Profile
Booklet. The eligibility requirements for MIMS are as follows.

Eligibility requirements according to the provisions under Rule 32 of the USE Listing
Rules, 2021

Rule 32(1)-The Issuer must be a company limited by shares.

Rule 32(2) - The Company should have a minimum authorised, issued, and fully paid up
share capital of 50,000 currency points and net assets of 100,000 currency points 35
Rule 32(3) – The Company should have published audited financial statements of at least 5
years.
Rule 32(4) – At the date of Application, the Issuer should not be in breach of any of its loan
covenants.

Rule 32(5) – At the date of Application and for a period of 2 years before the said date, none
of the Company’s Directors should have: been adjudged bankrupt; convicted of a felony; or

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been a subject of a ruling by court temporarily prohibiting him from acting as a Director of a
public Issuer.

Rule 32(6) – The Issuer should also have declared positive profit after tax attributable to
shareholders in at least 3 of the last 5 completed accounting periods immediately prior to the
date of the offer.

Rule 32(7) – Immediately following the Public Shares Offering, at least 20% of the shares
shall be held by not less than 500 public shareholders excluding employees and Directors of
the Issuer.

Task 3 (1, 2, 3, and 4)

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Microsoft Word
Document
 Task 4
Draft the necessary documents

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Document

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