An Analysis On the Protection of the Minority Shareholders' Rights in Uganda

TABLE OF CONTENTS

DECLARATION ................................................................................................................................................. i

APPROVAL ........................................................................................................................................................ ii

DEDICATION .................................................................................................................................................... iii

ACKNOWLEDGEMENT ................................................................................................................................... iv

TABLE OF STATUTES ...................................................................................................................................... v

ABSTRACT ........................................................................................................................................................ ix

CHAPTER ONE ................................................................................................................................................ 1

INTRODUCTION ............................................................................................................................................. 1

1. 0 Introduction ................................................................................................................................................... 1

1.1 Background to the study ................................................................................................................................ 1

1.2 Statement of the Problem ............................................................................................................................... 4

1.30bjectives ...................................................................................................................................................... 5

1.3.1 Specific objectives ...................................................................................................................................... 5

1.4 Research Questions ........................................................................................................................................ 5

1.5 Hypothesis ..................................................................................................................................................... 5

1. 6 Scope of the study ......................................................................................................................................... 5

1.7 Significance of the study ................................................................................................................................ 6

1. 8 Literature Review .......................................................................................................................................... 6

1.9.Research Methodology .................................................................................................................................. 9

1.10 Synopsis ...................................................................................................................................................... 9

CHAPTER TW0 .............................................................................................................................................. 11

LEGAL FRAMEWORK ON THE PROTECTION OF MINORITY SHAREHOLDERS ........................... ll

2.1 Introduction .................................................................................................................................................. ll

2.2 Minority shareholders protection imder the Companies Act of2012 .............................................................. 11

2.3 Importance of minority shareholder protection .............................................................................................. 12

2.3 .1 Access to information concerning the affairs of the company especially the financial affairs of the

company ............................................................................................................................................................. 13

2.3.2 Dividend policy ......................................................................................................................................... 13

2.3.3 Exit mechanisms ........................................................................................................................................ 13

2.4 Essential of the minority claim; ..................................................................................................................... 13

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2.5 Enforcement of minority shareholders' rights ................................................................................................ 14

2.5.1 Introduction ............................................................................................................................................... 14

2.5.2 The Requirement for special resolutions ..................................................................................................... 14

2.5.3 Requirements for court to sanction some matters; ....................................................................................... 15

2.5.4 Request for extra-ordinmy General meeting ............................................................................................... 15

2.5 .5 Petition to registrar of companies and courts for redress; ............................................................................ 15

2.5 .6 Altemative remedy to winding up- protection of minority shareholder from oppression conduct. .............. 16

2.5.7 Shareholder huy out ..................................................................... :·····················-······························· ......... 17

2.6 Protection mechanism under common law .................................................................................................... 18

2.6.1 Introduction ............................................................................................................................................... 18

2. 7 Conclusion ................................................................................................................................................... 20

CHAPTER THREE .......................................................................................................................................... 21

RIGHTS AND INFRINGEMENTS ON THE MINORITY SHAREHOLDERS RIGHTS IN

UGANDA .......................................................................................................................................................... 21

3.1 Introduction .................................................................................................................................................. 21

3.2 Rights of the minority shareholders ............................................................................................................... 22

3 .2.1 Rights to vote at mmual shareholders meeting ............................................................................................ 22

3.2.1.1 Introduction ............................................................................................................................................ 22

3.2.2 The legal rights ofthe minority shareholders .............................................................................................. 23

3.2.3 Shareholder representation on the board ..................................................................................................... 24

3.2.4 Dividend Policy ......................................................................................................................................... 24

3.2.5 Right to vote on major corporate events ..................................................................................................... 24

3.2.6 Fiduciary duties owed by majority shareholders towards minority shareholders .......................................... 24

3.2.6.1 Duty to issue of certificates ..................................................................................................................... 24

3.2.6.2 Minority discount .................................................................................................................................... 25

3.2.7 Benefits from shareholdings as the right of the shareholders or minority shareholders ................................ 26

3.3 The unfairly prejudicial corducts on the minority shareholders ..................................................................... 26

2.3.1 Exclusion from management ...................................................................................................................... 26

3.3 .2 Diversion of business to another company to which the majority shareholders have interest ....................... 27

3.3.3 Abuse of power m1d breaches of Articles of Association ............................................................................ 27

3.3.4 Repeated failure to hold Ann\ml General Meeting ...................................................................................... 28

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3.3.5 Delaying accounts and depriving members of the rights to know the state of the Company's Affairs .......... 29

3.4 Conclusion; .................................................................................................................................................. 29

CHAPTER FOUR ............................................................................................................................................ 30

PROTECTION MECHANISM AND APPROPRIATE REMEDIES TO THE MINORITY

SHAREHOLDER ............................................................................................................................................. 30

4.1 Introduction; ................................................................................................................................................. 30

4.2 Capital markets and securities laws ............................................................................................................... 30

4.2.1 The capitalmarkets; ................................................................................................................................... 30

4.2.2 The Uganda Securities Exchange (USE) Listing Rules; .............................................................................. 31

4.2.2.1 Transferability of securities ..................................................................................................................... 31

4.2.2.2 Continuous Disclosure Obligation of the USE; ........................................................................................ 31

4.3 The Capital Market Corporate Governance Guidelines of2003; .................................................................... 31

4.3.1 The Board of Directors; ............................................................................................................................. 32

4.3.2 Rights ofshareholders; ............................................................................................................................... 32

4.3.3 The conduct of the general meeting; .......................................................................................................... .32

4.4 Use of Altemative Investment Vehicle; ......................................................................................................... 33

4.5 Minority petition for a just and equitable winding up; ................................................................................... 33

4.6 Relief available; ............................................................................................................................................ 35

4.6.1 Specific damages: ...................................................................................................................................... 35

4.6.2General damages; ....................................................................................................................................... 36

CHAPTER FIVE .............................................................................................................................................. 37

CONCLUSIONS AND RECOMMENDATIONS ........................................................................................... 37

5.0 Introduction .................................................................................................................................................. 37

5.1 Conclusion ................................................................................................................................................... 37

5.2 Recommendations ........................................................................................................................................ 39

5.3 CONCLUSION ............................................................................................................................................ 40

REFERENCES ............................ , ..................................................................................................................... 42