International Corporate Finance – Uganda – Brendah N. Mpanga

BNM Advocates has been solving legal challenges for businesses for almost ten years now. The firm has wide expertise in respect to corporate finance services. Some of these include: debt and equity finance advisory, joint ventures, structuring partnerships between investors and investees, corporate and shareholder restructuring, employee share schemes, capital raising, risk management, corporate governance, private debt management, corporate legal due diligence, as well as real estate and investment.

The target audience for these services comprises of startups, small and medium-sized enterprises, impact finance entities and multinational/foreign companies that wish to enter the Ugandan market.

BNM Advocates provides an inter-disciplinary approach to its clients. For example, we combine legal expertise with tax planning and administration. We have a global reach through the African Continental Legal Network, (ACLN) a platform that was established to provide a one-stop shop for legal services for businesses across Africa and the globe. Similarly, we are a member of the International Lawyers Network (ILN), through which we offer cross-border transactional services.

We choose to be proactive in our engagements by anticipating legal risks and mitigating such for our clients through arranging awareness sessions on new legal developments, as well as drafting of key governance policies where necessary. We endeavour to provide personalised services by being dedicated, accessible and always respond in a timely manner. We also strive to understand the business strategies of our clients to provide tailor-made legal solutions.

a) The Companies Act, Cap. 106
b) The Financial Institutions Act, Cap. 57
c) The Income Tax Act, Cap. 338
d) The Competition Act, Cap. 66
e) The Anti-Money Laundering Act, Cap. 118
f) The Business Names Registration Act, Cap. 105
g) The Tier 4 Microfinance & Money Lenders Act, Cap. 61
h) The Insurance Act, Cap. 191
i) The Capital Markets Authority Act, Cap. 64
j) The Employment Act, Cap. 226
k) The Trademarks Act, 225
l) The Copyright & Neighbouring Rights Act, Cap. 222
m) The Privacy & Data Protection Act, Cap. 97
n) The Investment Code Act, Cap. 74
o) Public Finance Management Act, Cap. 171
p) Uganda Development Corporation Act, Cap. 208
q) The Partnerships Act, Cap. 110
r) The Contracts Act, Cap. 284
s) The Stamp Duty Act, Cap. 339
t) The Trade (Licensing) Act, Cap. 79
u) Registration of Documents Act, Cap. 291
v) Uganda Citizenship & Immigration Control Act, Cap. 313
w) The Registration of Titles Act, Cap. 240
x) The Land Act, Cap. 236
y) Security Interest in Movable Property Act, Cap. 293
z) The Mortgage Act, Cap. 239
aa) The Insolvency Act, Cap. 108

Most of the neighbouring countries to Uganda practise common law; therefore, there are similarities in the framing, operation and enforcement of the provisions of the law.

I think it may not be fair to say one particular area has been most active. There are a number of variables that have contributed to each one of them. The economy has been growing steadily, with a GDP growth rate of 6%. Uganda’s GDP per capita has been increasing, demonstrating improved living standards. The government had implemented policies to promote private sector growth and investment, and various initiatives have been put in place to boost investments accordingly.

In respect to private equity and investment funds, the Income Tax Amendment Act that came into effect on the 1st of July 2024 provided incentives by allowing for tax exemption for income derived from, or by, private equity and/or venture capital entities. This was enacted to encourage investments in the equity / venture capital space. This will definitely increase such investments in the economy.

Agribusiness, health, education, technology sectors.

Buying and selling of interests in businesses or business assets – wherein the challenges can be numerous. This is especially true when a transaction is not handled appropriately. Some of the challenges are summarised below:

i) Ineffective due diligence, wherein thorough investigations are not completed that would otherwise identify potential risks and liabilities;
ii) Valuation disputes, wherein there is failure to determine the fair market value of a business;
iii) Ineffective negotiations of the terms and conditions under the Term Sheet;
iv) Failure to meet all regulatory requirements – for example, under the new Competition Act, new approvals were introduced in cases of joint ventures and M&A.

Relationship with Shareholders

i) Failure to understand their rights and obligations, thereby disrupting the operations of a business;
ii) Engaging in insider trading, which among other factors, causes reputational and financial risks;
iii) Lack of clarity in respect to exercise of powers, duties and rights between shareholders, which leads to conflict with other stakeholders in the business.

Corporate Governance & Financing

i) Lack of internal governance structures that expose the financing to misuse and misallocation;
ii) Poor and ineffective decision-making between the Board and shareholders on key strategic initiatives;
iii) An ineffective Board that does not understand their fiduciary roles and oversight role in respect to management.

The employment-related law in Uganda and the rest of the globe has evolved. Recently, this has been affected/influenced by the COVID era, which introduced new ways of working for staff, while also creating new challenges in respect to confidentiality, privacy and data protection, use of technology and the storage of client information, performance management, redundancy, mental health and wellness issues, force majeure, flexi-work, social security and tax matters. All of these should be looked at wholistically. In advising a multinational on such matters, key consideration should be given to the local regulatory requirements with a blend of some of the global employment policies to encompass the universal challenges introduced by the COVID era.

It all starts with selecting the right business structure, while meeting the regulatory requirements that include, among other elements: securing licences and permits, executing founding documents to ensure that shareholders have an effective relationship with management, onboarding the right staff with the right documentation, managing and documenting performance and staff-related policies, IP, as well as securing insurance where necessary.

On a regular basis, there should be checks to ensure the business is compliant with legal and regulatory requirements. It is further necessary to conduct refresher training on legal and risk management, in addition to Board evaluations – which confirm that the business has the right leadership at a strategic level.

In respect to contracting, it is important to have effective contracts with stakeholders, and these include – but may not be limited to – staff, suppliers, distributors, partners, shareholders and other key components. As an entrepreneur, it is crucial to ensure the business is cushioned against any risks that may expose it to loss of revenue. We position ourselves to ensure we mitigate these risks, so that the entrepreneur may focus on the business. We would also develop compliance checklists, which are reviewed on a regular basis.

FinTech has greatly improved corporate finance by introducing and streamlining ways of doing business. Some of the new ways include an expanded access to capital for SMEs and startups, as well as introducing digital and online payments systems that have streamlined payment processes, reduced costs and improved efficiency in the performance of business operations. It has also resulted in improved business efficiencies, collection of data and the limitation of human error and dependence. The automation of financial management for businesses cannot be underestimated. The advent of FinTech has improved financial reporting via efficient and accurate cashflow management systems, which have optimised working capital and liquidity management, improved risk management and mitigation of revenue leakage, as well as resulting in the automation of accounting and bookkeeping.

Furthermore, the impact of FinTech on corporate finance has led to expending more on development of a new skill set – one that is based on technology surrounding data analysis and operational management.

Inflation has contributed to short-term effects by creating inflation-driven shortages and delays in supply chain, increasing costs due to higher production and operation, as well as reducing consumer spending power, which affects revenue.

The long-term effects of inflation include the impact on project valuations and investment decisions, which affect budgeting for businesses, increase the cost of borrowing (and lead to an eventual increase in the cost of capital), increase the value of assets and the effects of depreciation, as well as taking a toll on dividend payments. As a result, businesses streamline their operations to maintain profitability and strategically pass costs to consumers, which increases the cost of the final product.

In addition, the effect of political instability on corporate finance can result in significant business disruption. Some of the key effects include currency fluctuations due to instability in international trade, market volatility in stock markets, reduced investor confidence and funding, as well as fiscal and monetary policy uncertainty.

We are part of a wide-reaching network, the International Lawyers Network – at a global level – as well as the East Africa Venture Capital Association, which allows us to engage with other like-minded legal professionals. These and other networks create a platform for us to gain access to new/unique opportunities, which we are able to utilise in meeting and complying with foreign laws.

The most recent one is the Competition Act, 2023, which introduces new requirements for businesses that intend to enter into M&A and joint ventures. They are required to seek approval from government authorities prior to such transactions.

The recent Income Tax amendments that came into force in July, 2024, favour private equity and venture capital business by exempting income earned from such transactions from paying tax. This acts as an incentive to foreign investors that may wish to enter the Ugandan market.