What constitutes membership or shareholding of a company in Uganda?
When is one a shareholder or member of a company? This issue was recently considered by the Supreme Court of Uganda in Matthew Rukikaire v Incafex Limited
, which ruled that a person who has not fully paid up their shares may be considered a member and shareholder of a company with rights to full participation in the affairs of the company to the extent allowed by the types of shares they hold. In addition, companies are responsible for concluding the registration of members by entering their names into the members’ register. The consequences of failing to execute this duty cannot and will not be visited on unregistered members.
This case not only clarifies what constitutes membership and shareholding in a company, but also addresses what actions by companies may be considered oppressive and justify winding-up.
In this case, the appellant, Matthew Rukikaire, had petitioned the High Court, alleging that the affairs of Incafex Limited (the “company
”) were being conducted in a manner oppressive to him as a member of the company. He claimed that he had been excluded from meetings and the company had refused to convene any meetings at his request.
The company, however, contended that the appellant was not a member of the company as he had not paid for the shares allotted to him and he therefore had no standing at company meetings or to file the petition. The appellant had neither proof of payment for the shares nor a share certificate, and his name was not entered into the members’ register. As proof of his membership in the company, the appellant submitted an annual returns form with his name included, a return of allotment form and a memorandum of understanding naming him as a signatory to the company’s bank accounts. He argued that non-payment for the allotted shares did not bar his membership of the company.
The High Court held that the appellant was a shareholder and therefore a member of the company. The court also found that there was sufficient evidence of oppression by the company.
The matter went on appeal to the Court of Appeal, which overturned the High Court’s decision, holding that the appellant was not a member of the company as he had failed to furnish proof of his subscription to the allotted shares. Consequently, his lack of membership in the company deprived him of legal basis to sue the company to enforce his rights as a member and barred him from claiming oppression.
On a subsequent appeal to the Supreme Court, the Court of Appeal’s decision was reversed and the decision of the High Court reinstated. The Supreme Court agreed that the appellant was a member of the company and that he was oppressed. In reaching this finding, the court relied on the definition of a “member” under the Companies Act, 2012, which states that a member is either a subscriber to the memorandum of a company and on its registration entered into its register of members, or upon agreement to become a member of a company and entry into the register of members. This case involved membership by way of allotment of shares subsequent to the formation of the company.
The court also ruled that membership cannot be proved exclusively by the presence of an individual’s name on the register but rather by a purposive reading of the Companies Act, coupled with the steps taken between a shareholder and the company; for example, possession of a share certificate and appearance of the name on company returns.
A further issue considered by the Supreme Court was whether payment for the shares by the appellant was necessary to determine his membership of the company. The Supreme Court held that the obligation of a shareholder of a company limited by shares to pay for the shares arises either when the company calls upon the shareholder to make payment for the unpaid shares during its operation or when the company is being wound-up. Therefore, the lack of evidence that the appellant had paid for the shares did not affect his membership.
The court ruled that while oppression of a member would be determined on a case-by-case basis, certain acts deliberately made by the company to exclude a member from exercising their rights in the company are oppressive. Prejudicial treatment of minority shareholders by the company’s management and/or majority shareholders, abuse of discretion by the company’s management and advancing their own interests above those of minority shareholders or other members may be considered oppressive. In this instance, failure by the company to convene an annual general meeting to provide an avenue for feedback from members or shareholders was found to amount to oppression. Similarly, holding extraordinary meetings to the exclusion of the appellant as a member, as well as excluding him from participating in the resolutions passed thereunder, were oppressive. This article was reviewed by Phillip Karugaba, head of ENSafrica in Uganda.
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