Prior to the enactment of the Companies Act, 2012 (now Cap 106), the legal framework governing Company incorporation in Uganda required a minimum of two shareholders to form a Private Limited Liability Company, effectively barring sole entrepreneurs from legally registering Companies in their own names. This posed a significant limitation for individual business owners seeking to benefit from corporate structures such as Limited Liability and legal personality.
First forward to 2012, Uganda made significant strides in improving its business environment, making it more attractive for sole entrepreneurs, investors and business owners. One of the key developments in the country’s corporate legal framework was the introduction of the Single Member Company; a type of Limited Liability Company that allows a sole individual to register and operate a Company as the only shareholder and director.
This structure provided for under the Companies Act, Cap 106 offers a simplified and flexible path to formalizing a business while still enjoying the benefits of Limited Liability. This article therefore explores the definition, key features and incorporation process of a Single Member Company in Uganda.
Definition of a Single Member Company (SMC)
A Single Member Company is defined as a Private Company limited by shares or by guarantee that is incorporated with only one member who is the shareholder and sole director.
Key Legal Features
1. Separate Legal Personality
One of the fundamental principles of company law is the doctrine of separate legal personality. Even though a Single Member Company is owned and controlled by one individual, the law treats it as a separate “person.” This implies that a Company can own property in its own name, enter into contracts and sue and be sued in its own name. This separation of the Company from its member offers the sole shareholder the benefit of Limited Liability and ensuring that their personal assets are protected from the Company’s financial obligations.
2. Limited Liability
One of the most attractive features of forming a Single Member Company is the benefit of Limited Liability. This legal concept means that the personal financial risk of the sole member is confined to the amount they have invested or agreed to invest in the Company typically the unpaid portion of their shares.
In practical terms, if the Company incurs debts or faces legal claims, the sole member is not personally responsible for paying those obligations out of their own assets. Their liability is limited to what they owe on their shares. For example, if the sole member has fully paid for their shares, they cannot be asked to contribute further money to satisfy Company debts, regardless of the amount the Company owes. The concept of Limited Liability in a Single Member Company offers both legal clarity and financial security.
3. Director Requirements
Under Section 186 of the Companies Act, Cap 106, a Single Member Company is permitted to have only one director, who may also be the sole shareholder of the Company. This provision offers a streamlined and cost-effective framework for individual entrepreneurs and small business owners who wish to operate a business with Limited Liability, without the administrative burden of involving additional people in the Company’s governance.
Nominee and Alternate Nominee Directors
These directors are designed to ensure the continuity and proper governance of a Single Member Company especially in cases where the sole member is unable to act due to death, incapacity, or other reasons. In the event the sole director is unable to fulfill their duties, the Nominee Director assumes the role. Should the Nominee Director also be unable to perform, the Alternate Nominee Director takes over.
Incorporation Process
The Single Member is required to complete the following steps and submit the relevant documentation with Uganda Registration Services Bureau (URSB) for registration.
- Conducting a name search
- Reservation of the name
- Form 1- Notice of Beneficial Owners
- Form 20- Notification of Appointment of Director and Secretary of the Company
- Confirmation of Official Contact Information Form
- Form 1- Notice of Nomination of Nominee Director and Alternate Nominee Director by Single Member
- Memorandum and Articles of Association Form for a Single Member Company
- Form A1- Statement of Nominal Capital
- Form S.18- Notice of situation of the registered office and registered postal address
- Memorandum and Articles of Association
- National Identity Cards of the Single Member, Nominee Director and Alternate Nominee Director
- Payment of registration fees
Upon incorporation of the Single Member Company, it is then issued a Certificate of Incorporation in its name with the initials “SMC LTD” or the word “Single Member Company Limited” at the end of its name.
