KIRUMBA-MASAKACAMPUS

P.O BOX 322, MASAKA UGANDA

TEST

NAME: NAKIBUUKA VIOLA

REGISTRATION NUMBER: 23/U/BSAF/0517K/DAY

COURSE NAME : COMPANY LAW

COURSE CODE : ADM2206B

LECTURER: MR. KIHIKA AMON

QUESTION:

Research on Pre incorporation contracts, Duties of promoters and their rights, appointment of
directors and their duties.
The incorporation of a company represents the genesis of its corporate personality, conferring
upon it a distinct legal identity separate from its founders. Nonetheless, prior to attaining
corporate status through registration, individuals—designated in law as promoters—often
undertake binding commitments in anticipation of the company’s formation. The Companies
Act, 2012 (Cap. 110) of Uganda comprehensively delineates the legal architecture governing
pre-incorporation contracts, imposes fiduciary and statutory obligations upon promoters, and
articulates the procedural and substantive requirements for the appointment and regulation of
directors. This legal framework fosters corporate transparency, good governance, and
accountability in Uganda’s commercial sector as detailed below;

Pre-incorporation contracts under section 54 of the Companies Act, 2012

Pre-incorporation contracts are agreements executed in contemplation of a company’s future

Enforceability and legal capacity: Any contract entered into on behalf of a company yet to be
incorporated is, in law, enforceable only against the individual purporting to act for the company.
The nascent company lacks legal capacity and cannot be bound unless it subsequently ratifies or
adopts the contract post-incorporation.

Post-incorporation adoption: Once the company is duly registered, it may, by express resolution
or implied conduct, adopt the contract. Upon such adoption, liability vests in the company, and
the promoter is discharged from any personal liability.

Residual liability of promoters: Where no adoption occurs, the promoter remains personally
liable as a principal party to the contract, and may be sued for breach.

With reference of an illustration, if a promoter enters into a binding lease for office premises
before incorporation, and the company later adopts the lease via board resolution, liability under
that lease transfers from the promoter to the company.
Duties and rights of promoters

While the Act does not offer an express statutory definition of a promoter, the term is well
recognized in both statutory interpretation and common law jurisprudence. A promoter is one
who undertakes to form a company and who takes the necessary steps to bring it into existence.

Promoters stand in a fiduciary relationship to the company they promote. This relationship
demands utmost good faith, full disclosure of material facts, and an avoidance of self-dealing or
conflict of interest. Promoters must not derive secret profits unless they secure the informed
consent of the company, typically through its independent board or initial shareholders.

Any profit acquired by a promoter in the course of promotion must be fully disclosed; otherwise,
such gain is subject to constructive trust principles and may be claimed by the company.

Upon incorporation and adoption of pre-incorporation obligations, promoters are entitled to

With reference, according to Professor David Bakibinga, “A promoter is not a mere agent; he
occupies a position of trust and must account fully for all profits and benefits made in the
promotion process.”

Appointment of directors under sections 185–190 of the Companies Act of 2012

The appointment and composition of a company’s board of directors is a cornerstone of

With numerical requirements the sections outlay the directive of a private company having at
least one director and a minimum of two directors.

Nominee directors for single-member companies under section 186, a sole member is mandated
to nominate two individuals to serve as nominee and alternate directors to ensure succession
upon the member’s death or legal incapacity.
With a look at qualifications and disqualifications, directors must provide written consent to act,
not be disqualified persons under any applicable law like undischarged bankrupts, minors, or
individuals convicted of fraud and fulfill any prescribed shareholding requirements if stipulated
by the company’s articles.

With the appointment of secretary, companies, excluding single-member entities, are required to
appoint a company secretary, who must be professionally qualified like an advocate of the High
Court, an accountant under ICPAU, or a chartered secretary under ICSA. As per Section 189, the
roles of director and secretary cannot be held by the same individual in a single-director
company. For example: A public company in Masaka must appoint at least two qualified
directors and retain a company secretary who is a certified professional under Ugandan law.

Duties of directors under section 198 of the Companies Act of 2012

The Companies Act, 2012 codifies director’s duties, reinforcing their fiduciary responsibilities
and accountability mechanisms with due respect to:

Duty to promote corporate success whereby directors are obligated to act in a manner that
promotes the success of the company for the benefit of its shareholders, considering long-term
growth and ethical operation.

Standard of care, skill, and diligence where directors must exercise reasonable care, skill, and
diligence, equivalent to what would be expected from a reasonably competent person in their
position.

Good faith and loyalty where directors must act bona fide in the interest of the company, avoid
conflicts between personal interests and corporate duties, and must not exploit corporate
opportunities for personal gain.

Equitable treatment of shareholders under section 198 further mandates that all shareholders be
treated equitably, ensuring that no class of shareholder suffers prejudice due to board conduct.
Prohibition against secret benefits where directors are strictly prohibited from accepting
undisclosed benefits from third parties in connection with their office and must disclose any such
interests under penalty of removal or prosecution.

With sanctions for breach: with disqualification under section 199, for failure to maintain
statutory records, insolvent trading, or violation of fiduciary duties and restriction from
directorship under section 201, courts may issue an order barring an individual from holding
directorial office for up to five years if found guilty of fraudulent or reckless management. For
example, if a director allows a company to trade while technically insolvent in violation of
fiduciary standards, the High Court may disqualify such a person from acting as a director in any
Ugandan company.

Validity of acts and additional restrictions;

De Facto validity under section 190: Even if a director or secretary was improperly appointed,
the actions taken by such individuals are not automatically rendered invalid, so long as third
parties acted in good faith.

Age and identity disclosure under section 197: A director must be at least 18 years of age, and
must declare their full identity and age to the Registrar upon appointment.

Prohibition of dual role under sections 188–189: The same individual cannot occupy the
offices of director and company secretary concurrently in a single-director structure.
Conclusively, the Companies Act, 2012 of Uganda encapsulates a robust legal regime that
governs the foundational stages of corporate formation, particularly the conduct of promoters
and the appointment and oversight of directors. Promoters, as fiduciaries, must act with integrity
and are held accountable for all pre-incorporation undertakings. Directors, as custodians of the
corporate enterprise, bear statutory duties that ensure ethical, legal, and profitable operations. By
codifying these responsibilities and integrating enforcement mechanisms, the Act fosters a
climate of trust and legal compliance essential to Uganda’s expanding business environment. For
both prospective entrepreneurs and legal practitioners, a thorough understanding of these
statutory mandates is indispensable for responsible and sustainable corporate governance.