When business owners aren’t liable for debts

Political campaigns are expensive affairs, exposing many to debt with commercial banks. But people run into trouble with banks because they have exposed themselves personally. So in the end they become fugitives.
By incorporating your business, Mr Mao says you have a big shield called limited, to protect you. So he opted to incorporate something called Mao Political Action Committee Ltd.

“After every campaign politicians have debts. I went to the Uganda Registration Services Bureau (URSB) and had a conversation, they resisted my efforts to register something called the Political Action Committee.

The Justice Minister says; “I asked them to tell me under which law, they are refusing my name. I told them, I can give myself any name under the law. So the Mao Political Action Committee Ltd was duly born as a company limited by guarantee.”

Explaining that he was hiding behind that company as he borrowed money for fuel and other things. That naturally after the campaigns he had over Shs400m in debt, thanks to that initiative and the power of the word limited and the shield that comes with incorporating your interest.

He says after the elections, he would get calls from creditors asking him when he would pay them. His response would always be, “Sorry, the company is still looking for money.” Later, his limited company was able to clear the creditors, under not much pressure.

This made him appreciate the importance of separating oneself from the company dealings. With wealthy business persons like the former US President Donald Trump, every once in a while his company declares bankruptcy and he dumps all portfolios of bad debts and emerges anew.

Mr Mao contends that some people may think what he is saying is fishy, but life would be impossible, if people were personally liable for these debts. So limited means, it is your liability which is restricted to only what you have put in the company.

Those he owed after elections, could not attach his private assets like cars, because the Mao Political Action Committee is what owed them. No one could sue him as Mao for the debt incurred by the company.
In Uganda, Companies are registered and regulated by URSB.  

According to Steven Baryevuga the senior communications and media relations officer at URSB, incorporating a company provides limited liability protection to the owners/shareholders. By incorporating the company, it becomes a separate legal entity. This means the owners’ personal assets are generally protected from the liabilities and debts of the company. In case of bankruptcy or legal issues, creditors usually cannot go after the personal assets of the owners.

For those who want to see their companies with a professional image, Mr Baryevuga says incorporating a company is the way to go. As it shows that you are serious about your business and committed to its success. Investors, customers, and partners often perceive incorporated entities as more reliable and trustworthy.

Noting that access to capital is simplified by incorporating your business, you can issue shares of stock or take on loans and investment from third parties, enabling you to raise funds for your business easily. This can be helpful for growth and expansion plans.

Mr Baryevuga says that companies have perpetual existence, meaning the business can continue operating even if the ownership changes or key individuals leave the company. This ensures business continuity and stability.

However, incorporation requires adhering to specific legal formalities, such as holding regular meetings and maintaining detailed financial records. These practices promote organisational discipline, corporate governance, and transparency.

Other than that, Mr Baryevuga says incorporated businesses typically have more straightforward procedures for transferring ownership. This is especially valuable if the owners plan to sell the business or pass it on to heirs.
He insists that businesses that are incorporated may find it easier to attract and retain employees, as they can offer more stability, benefits, and professional growth opportunities.

Separating personal and company dealings, Mr Baryevuga further claims that is crucial for effective succession planning. Incorporation allows for the orderly transfer of ownership and management, ensuring the business’s continuity after the departure of key individuals.

Many industries and jurisdictions require certain businesses to be incorporated to operate legally. Failing to incorporate when required can lead to legal and financial penalties, according to Mr Baryevuga. 

Incorporation provides legal protection to intellectual property, trade secrets, and proprietary assets, which are essential for many businesses.
There are several advantages of a company limited by guarantee., including:
Limited liability
Members of the company are liable only up to the amount they guarantee. This means that their personal assets are protected if the company faces financial difficulties or insolvency.

Non-profit focus: Companies limited by guarantee are often used by non-profit organisations, charities, or social enterprises. The structure allows these organisations to pursue their social or charitable objectives without the need to distribute profits to shareholders.

Legal entity
 Being a separate legal entity, a company limited by guarantee can enter into contracts, own property, and engage in legal proceedings in its own name. This gives the organisation a sense of credibility and allows it to operate independently.

Perpetual existence
A company limited by guarantee has perpetual existence unless it is dissolved voluntarily by court order. This provides stability and continuity to the organisation.

Funding opportunities
Many grant-making organisations and government bodies prefer to fund established legal entities such as companies limited by guarantee. This structure may open doors to funding options and partnerships that would otherwise be unavailable.