This Reference Guide (Guide) is meant to be a practical tool to assist social enterprises in understanding the most common legal issues that will arise at an early stage in an enterprise’s development. These include legal issues related to (1) formalizing a business; (2) choosing to register as a for-profit or non-profit entity; (3) registering a business; (4) employment; and (5) taxation issues. The Guide is not meant to provide legal advice; it is intended to serve as a reference tool for social entrepreneurs, many of whom may not have access to legal counsel, to familiarize them with common legal issues. In all cases in which a legal decision must be made, we recommend consulting a local attorney with appropriate specialization.
This Guide was developed as a resource for United Social Ventures (USV), a Uganda-based entrepreneurship incubator, and other social enterprises operating in Uganda. The project was brought to the International Economic Law (IEL) Practicum at Georgetown University Law Center by the New Markets Lab (NML), a non-profit legal innovation lab that focuses on the design and implementation of economic law and regulation in emerging markets, which had been approached by United Social Ventures about developing a guide. NML has developed a series of legal and regulatory guides for entrepreneurs and other partners and will continue to work independently and through TradeLab to expand this library and reach more social enterprises with these tools.
The student team from Georgetown University Law Center that developed this Guide used an informal questionnaire to gather input from USV entrepreneurs. Among other things, the questionnaire found out that entrepreneurs had tremendous concerns about difficulties of formalizing and registering businesses. They expressed not only their willingness but also their confusion about compliance with multiple national laws and regulations, which included but not limited to company laws, labor laws and taxation.
Chapter I of the guide addresses a common concern highlighted both by USV’s entrepreneurs and institutions like the World Bank and Organization for Economic Co-operation and Development: the legal aspects of formalizing a business understood in the context of the dynamics of the informal economy in developing countries. Formalization has several components, which exceed the actual regulatory process of registering a business. Formalization encompasses the payment of taxes, compliance with corporate law, and other issues. In Uganda, 85% of non-agricultural jobs are described as informal by the National Labor Survey. Formalization is unpopular because it is a costly and time-consuming process. However, formalization also gives rise to rights for a company, its owners and staff which can ultimately improve a company’s ability to grow and do business in a secure fashion: right to export, protection of employees, limited liability, etc.
Chapter II outlines different options for incorporating a business and can serve as a guide for entrepreneurs who want to formalize their businesses by comparing the fundamental differences and similarities between different types of for-profit companies and non-profit entities. Once an entrepreneur has chosen the corporate form that suits their needs the most, the guide lays out certain compliance requirements that the new business owner must consider, as non-compliance penalties include financial penalties and imprisonment. These include regular mandatory meetings and proceedings, financial reporting, and anti-money laundering compliance, which are highlighted as mandatory compliance for formal businesses.
One of the biggest concerns reported by Ugandan social entrepreneurs is the complexity of registering a business. Chapter III outlines the steps in registering a business, in compliance with numerous Ugandan laws and regulations. This Chapter contains a Business Registration Flow Chart, with some important registration details, which includes designated registration bureaus, materials and forms that one needs to prepare, cost and time required, and websites and portals that can be consulted during registration.
Chapter IV will guide entrepreneurs through common employment issues. First, an employer must be aware that, depending on the category of employee the enterprise seeks to hire different considerations will arise. Second, once an employee is hired, early-stage formalities - written statement of terms, contract of service - will have to be complied with by the employer. Third, employees have different statutory rights that an employer must know in order to avoid conflicts. Finally, an employer may need to terminate an employee, and this process may give rise to lengthy disputes if the correct process is not complied with.
Even in the fulfilment of civic duties, social entrepreneurs will have concerns about tax rates and tax administration. Chapter V introduces some of the most relevant taxes entrepreneurs may face, as well as the rights and obligations as a Ugandan taxpayer.