Assessment of the Capital Maintenance Doctrine under Uganda Company Law: Challenges and Prospects

This study assesses the capital maintenance doctrine within the context of company law in Uganda. Riding on the policy rationale that ‘capital should not be dissipated unlawfully’ and that ‘the members must not have the capital returned to them surreptitiously’ the capital maintenance rules were designed with the aim of ensuring that a company does not engage in transactions relating to its share capital in a manner that is tantamount to returning capital to members. The rules were however crafted in a lopsided manner which tends to lock the prospects of fair dealings in share capital as may be justified by the actual financial position of a company. Using a doctrinal approach, this paper interrogates the relevant provisions of the Companies Act 2012 as well as existing scholarly literature espoused in books, journal articles and online sources. The study adopts the resource dependency theory which centers on the role that company managers play in providing the necessary resources for the organisation vis-à-vis the external environment. Findings reveal that the provisions of the Act still remain inclined to the rules-based approach of asserting the capital maintenance doctrine. As such, the so called reforms introduced by law in 2012 have failed to produce the desired innovations in the core areas of company law relating to the maintenance of company capital. For a more balanced approach of capital maintenance regulation, the paper advocates for the adoption of a practical approach using the solvency test which gives consideration to the financial position of the company.