CORPORATE AND

COMMERCIAL PRACTICE.

MODULE 2 WORKSHOP 2
 TASK1 ( GROUP 1)

BRIEF FACTS
Imara Ventures (the company) is an existing Telecommunications
company in Uganda dealing in both voice and internet services. They
are interested in raising funds to the tune of United States Dollars Ten
Million (USD 10,000,000) from a Mauritius Venture Capital Fund, Otis
Capital Partners for working capital. The anticipated close of this
financing round is 31st December 2023. They are also interested in
taking the company public in order to comply with the licensing
requirements of the Uganda Communications Commission by 31 st
December 2024.
 ISSUES ARISING

1. What procedural steps of venture capital financing can be

undertaken?
2. What are the pros and cons of venture capital and private equity as
methods of corporate finance?
3. Structure the salient aspects of Simple Agreements for Equity
(SAFEs) and Convertible Notes as financial instruments in venture
capital transactions.
 Resolution of issues

• Issue 1. What procedural steps of venture capital financing can be taken?

• Venture capital financing is an essential form of external corporate finance for

many startups and high-growth companies. In the given scenario, it is
important to understand the procedural steps involved in securing venture
capital financing.

• Venture capital is money provided to a new and growing business or money

provided to a new business by an investor and this investment is made in
exchange for equity stake in the business upon its growth.

• The venture capitalists beyond providing capital to the business, they also
offer strategic guidance, industry connections, and operational support to help
the company grow and expand.

• For a company or business to look at the financing or pre preparation steps are
in summary as below;
1. The business starts by looking out for the Potential Venture Capitalists who
do specialize in investing in your business ventures are look pout for their
terms and conditions their maximum capital value amongst other features.

• Thereafter Prepare business plans and ideas and an investor pitch deck that
does tell the story of your business to do go ahead and persuade the potential
investors and this includes outlining your company's growth potential,
market opportunity, competitive advantage, and financial projections.

• 2. Reach out to Venture Capitalists through your network or industry

connections to secure introductions to potential venture capitalists carry out
Initial Meetings and Pitches and be prepared to concisely explain your value
proposition, market opportunity, and why your company is a compelling
investment opportunity.S
 Con’t…….
• 3. Due Diligence carried out by the ventures or call them investors that
show or gain interest in your business, they will conduct due diligence to
assess the risk and potential of the investment. This may involve reviewing
your financials, conducting market research, and assessing the capabilities
of the management team. If the investor is satisfied with their findings,
they may issue a term sheet outlining the proposed terms of the investment.

• 4. Upon coming up with a term sheet which is a non-binding agreement

that shows the basic terms and conditions of an investment you start
negotiations with the venture capitalist to finalize the terms of the
investment. This may involve discussions around valuation, equity stake,
governance rights, and other terms such as board representation and
investor protections.

•
 Con’t…….
• 5. After the negotiation is closed the agreements reached upon are legally
documented like the stock purchase agreement and upon finalization the
venture capitalist do provide the necessary funds as promised to the
business

• The procedural steps of venture capital financing are summarized in six

procedural steps as explained below:

1. The seed financing and here funds are provided by the venture capitalists
to go ahead and finance the initial coming up of a new idea.
2. The startup financing and here funding is provided for the establishment,
development of the product and its marketing.
3. The third stage is the first round financing and here the capitalists fund
the business’s manufacturing and early sales funding. Here usually the
funding covers the manufacturing of the product.
 Con’t…….
• 4.Upon coming up with a term sheet which is a non-binding
agreement that shows the basic terms and conditions of an investment
you start negotiations with the venture capitalist to finalize the terms
of the investment. This may involve discussions around valuation,
equity stake, governance rights, and other terms such as board
representation and investor protections.

• 5. After the negotiation is closed the agreements reached upon are

legally documented like the stock purchase agreement and upon
finalization the venture capitalist do provide the necessary funds as
promised to the business
 Con’t…….
• The procedural steps of venture capital financing are summarized in
six procedural steps as explained below:

1. The seed financing and here funds are provided by the venture
capitalists to go ahead and finance the initial coming up of a new idea.

2. The startup financing and here funding is provided for the establishment,
development of the product and its marketing.

3. The third stage is the first round financing and here the capitalists fund
the business’s manufacturing and early sales funding. Here usually the
funding covers the manufacturing of the product.

4. The second round financing where the operational money provided to

early stage businesses that are selling products but they are not
profitable. It covers shortfalls where the expenses and investments
exceed the revenue or profits earned.
 Con’t…….
5. The third round financing and here the funding is used to do expand
the newly profitable business that is now making some profits
• 6. The last procedure is the fourth funding that generally caters or
funds the going public process of the new business.
 ISSUE 2.
What are the pros and cons of venture capital and private equity as
methods of corporate finance.

Pros for Venture capital

1. For new companies or ventures with limited operating history (under

two years), VC is increasingly becoming a popular and essential
source for raising money, especially if they lack access to capital
markets, bank loans, or other debt instruments
2. Venture capital provides funding to new businesses that do not have
access to stock markets and do not have enough cash flow to take on
debts. This arrangement can be mutually beneficial because
businesses get the capital they need to bootstrap their operations, and
investors gain equity in promising companies.
 Con’t…………
3. In addition to investment capital, VCs often provide mentoring
services to help new companies establish themselves, and provide
networking services to help them find talent and advisors. A strong VC
backing can be leveraged into further investments.

4. Provides early-stage companies with capital to bootstrap operations

5. Companies don't need cash flow or assets to secure VC funding
6. VC-backed mentoring and networking services help new companies
secure talent and growth
 Con’t…………

• Cons

1. The main downside is that the investors usually get equity in the
company, and, thus, a say in company decisions. a business that
accepts VC support can lose creative control over its future direction.
VC investors are likely to demand a large share of company equity, and
they may start making demands of the company's management as well.
Many VCs are only seeking to make a fast, high-return payoff and may
pressure the company for a quick exit.

2. Demand a large share of company equity

3. Companies may find themselves losing creative control as investors
demand immediate returns
4. VCs may pressure companies to exit investments rather than pursue
long-term growth
5. Generally speaking, the younger a company is, the greater the risk for
investors.
 Con’t…………..
• Private Equity as a method of corporate Financing.

• Private equity describes investment partnerships that buy and manage

companies before selling them. Private equity funds may acquire
private companies or public ones in their entirety, or invest in such
buyouts as part of a consortium. They typically do not hold stakes in
companies that remain listed on a stock exchange. Private equity
firms buy companies and overhaul them to earn a profit when the
business is sold again. Capital for the acquisitions comes from outside
investors in the private equity funds the firms establish and manage,
usually supplemented by debt. In contrast with venture capital, most
private equity firms and funds invest in mature companies rather than
startups. They manage their portfolio companies to increase their
worth or to extract value before exiting the investment years later.
 Con’t……………
• Pros

1. By the time a private equity firm acquires a company, it will already have a
plan in place to increase the investment's worth. That could include dramatic
cost cuts or a restructuring, steps the company's incumbent management may
have been reluctant to take. Private equity owners with a limited time to add
value before exiting an investment have more of an incentive to make major
changes.
2. The private equity firm may also have special expertise the company's prior
management lacked. It may help the company develop an e-commerce
strategy, adopt new technology, or enter additional markets. A private-equity
firm acquiring a company may bring in its own management team to pursue
such initiatives or retain prior managers to execute an agreed-upon plan.
3. The acquired company can make operational and financial changes without
the pressure of having to meet analysts' earnings estimates or to please its
public shareholders every quarter. Ownership by private equity may allow
management to take a longer-term view, unless that conflicts with the new
owners' goal of making the biggest possible return on investment.
 Con’t……………
• Cons

1. By investing large sums of money, private equity groups can gain

increased influence over the direction of the company. Investors in
private equity may be able to gain greater control over where their
money goes.
2. There is no question, private equity investing can be high risk, While
some private equity investments represent incredible growth
potential, they also come with a significant degree of risk. It is never
a foregone conclusion that a company will wind up selling for more
than it was purchased for. Market conditions can change drastically in
a short period.
 TASK 2 (GROUP 2)
RESOLUTION OF ISSUES

• Issue1: What due diligence aspects are expected of a prospective

financer in a venture capital investment?
• Due diligence is the analysis an investor makes of all the facts and figures of
a potential investment to safe guard his money from loss.
• Legal requirements;

a) Certificate of incorporationS
• Section 22 of the Companies Act 2012 finds the certificate of incorporation
to be conclusive evidence that the requirements of the act in registration
have been compiled with thus a prospective financer must ascertain its self of
the due registration of the company that it intends to finance .

b) Memorandum and articles of association of the company.

• Sections 7 and 11 of the Companies Act 2012 provide for registration of
companies memorandum and articles respectively and these give a true
reflection of the company’s affairs, objectives, management structure,
liability, powers and duties of members and directors among others.
 Cont……..…
c). Registered resolutions.
• Company affairs are managed either through the members and the directors through
resolution which must be registered and filed with the registrar of companies, which
give legal effect to the undertaking by such a company such as the intention to seek
such finances.
• Financial position and standing

a) Annual returns of the company.

• Section 132 of the Companies Act 2012 provides for annual returns which reflect the
register of members, debenture holders, and indebtedness among others.

b). Audited books of accounts of the company

• Section 154 of the Companies Act 2012 mandates companies to keep audited books
of account, these further reveal the true financial position of the company a financier
intends to invest in such the equity status, assets, liabilities working capital and cash
flow among which will guide the prospective financer while making the decision to
fund such a company.

c). Credit history of the company seeking financing

• These further guide an investor where precious defaults and or otherwise proper
servicing of credit facilities to and by a company seeking financing give an insight
into possible recovery of the financer’s money or other not.
 ISSUE 2
What forms of financing can Imara Ventures undertake to
expand?
• A Venture can raise capital through listing of securities in stock exchange and this
means the admission of securities of a company to trading on a stock exchange. It
becomes necessary when a public limited company wants to issue shares or debentures
to the public. When securities are listed on a stock exchange, the company has to
comply with the requirements of Uganda Securities Exchange Booklet 2003, which
include, the company must have paid up capital of 500 million for tier 1 companies
and 250M for tier 2 companies. Therefore, Imara ventures can raise capital through
listing of securities in stock exchange however provided that it is a private company
and section 5(1) (a) of the Company’s act 2012 restricts the right to transfer its shares
and other securities. The private company out to be changed to a public company as
stipulated under section 24 of the company’s act, 2012 and it becoming a public
company it can list on the Uganda’s securities exchange therefore the public can apply
the shares in the company therefore it can be able to raise more share capital.
 Con’t…..
• A venture can raise capital by going public. In the case of Booth v
New Afrikander Gold Mining Company Ltd the term public means a
limited section of people who may include shareholders who are
willing to buy shares. When a company offers shares to the public for
the first time, it is said to be going public and the company must be
public and if a private company wants to go public it must be
converted to a public company. It must pass a special resolution of the
members to re- register as a public company and take necessary
amendment to the Articles of Association as outlined under section 24
of the Companies Act 2012. Therefore Imara Ventures can raise extra
capital by offering shares to the public.
• Issuing of a bond. The Capital Markets Corporate Bond Guidelines
2003 defines a bond a bond is a debt instrument with a maturity of
one year or more. Its sole purpose is to meet the long term financing
requirements.
 Con’t…….
• The company gets the money from the investors who buy its bonds.
Bondholders receive interest payments at fixed rates on specific dates. Holders
can sell bonds to someone else before they are due. A company can qualify to
issue bonds if it satisfies the following requirements provided for under The
Capital Markets Corporate Bond Guidelines 2003 such as it should have paid
up capital of not less than I billion shillings, if it does not have a minimum
share capital it must obtain a guarantee from a recognized financial institution.
Therefore, Imara ventures can raise extra capital by issuing of bonds

• A Venture can as well raise extra capital though selling a debenture. Section 2
of the Company’s Act, 2012 defines a debenture to include debenture stock,
bonds and any other securities of a company whether constituting a charge on
the assets of the company or not. A debenture may as well pay periodic
interest payment however they have low interest rate with long due payment
therefore Imara ventures can raise money through issuing a debenture.
 ISSUE THREE
Would Our Advice Be Different If the Company Decided to
Issue Corporate Bonds Rather Than Listing As A Form Of
Financing?
• Yes, our advice would be different if a company decided to issue corporate bonds rather
than taking on stock exchange listing as a form of debt financing for expansion because of
the key differences in terms of legal and regulatory considerations.

• Issuing corporate bonds is considered a way of raising debt capital without diluting
ownership and typically involves paying an interest rate, while stock exchange can raise
equity capital but does require sharing the corporate control with new shareholders.

• In essence, when you buy a share of stock, you own equity in the company and will
receive any dividends declared by the company but when you buy corporate bond, you
will not own equity in the company. However, will receive interest and principle on the
bond, no matter how profitable or financial difficulties that it faces. The company has no
similar obligation to pay dividends to shareholders. In bankruptcy, bond investors have
priority over shareholders in claims on the company`s assets.
 Con’t………….

• Corporate bonds

• According to the Capital Markets Corporate Bonds Guidelines, Corporate

bonds are instruments issued for the purpose of raising funds directly from
investors without intermediation by banks or other financial institutions to
meet the company`s long-term financing requirements.

• A bond is a debt obligation; where investors who buy corporate bonds are
lending money to the company issuing the bond and in return, the
company makes a legal commitment to pay interest on the principal and,
in most cases, to return the principal when the bond comes due, or
matures.
• For a company to issue corporate bonds, it has to meet the standards in the
guidelines
 Con’t…….
• Guideline 7 provides that no company shall issue corporate bonds unless it fulfills the
following requirements;

• (a) The issuer’s paid up share capital and reserves should not be less than Uganda

• Shillings One billion (Ushs. 1,000,000,000) and shall be maintained at that level
during the period the bond remains outstanding.

• (2) The issuer shall have made profits in at least two of the last three financial years
preceding the issue.

• (3) (a) The issuer’s total indebtedness, including the new issue of bonds should not
exceed 400% of the company’s net worth (or gearing ratio of 4:1) as at the date of the
latest balance sheet.

• (b) The issuer’s funds from operations to total debt for the three accounting periods
preceding the issue shall be maintained at a weighted average of 40% or more.

• (c) The conditions in paragraphs (a) and (b) shall be maintained for as long as the bond
remains outstanding.
 Con’t……….
Issuance of corporate bonds is primarily regulated by Capital Markets Authority.
Procedure:

 The issuer of corporate bonds shall submit to the CMA, and upon obtaining the
approval of the CMA, publish an offer document in the form of a Prospectus or
Information Memorandum, which complies with all the requirements for the issue
of securities as prescribed under the Capital Markets (Prospectus Requirements)
Regulations 1996, as amended. (Guideline 5 of the Capital Markets Corporate
Bonds Guidelines)
 The issuer shall make a public announcement in English language in both the
electronic and print media with nationwide circulation at least one week before the
issue opens. (Guideline 17 of the Capital Markets Corporate Bonds Guidelines)
 The issuer shall designate one receiving bank. All payments with respect to the
issue shall be made in the issuer’s name and shall be banked in a designated bank
account in the receiving bank. (Guideline 20 of the Capital Markets Corporate
Bonds Guidelines)
 Con’t………
•

LISTING

• Listing is the process by which a company`s securities, such as shares

(equity) or bonds (debts) are admitted to the formal stock exchange or
securities market. For a company to get listed, it should meet the
various requirements set out in the Uganda Securities Exchange
Listing Rules, 2021.

• Listing in Uganda is regulated by both the Capital Markets Authority

and the Uganda stock Exchange (USE)

• Rules 24 &25 of the Uganda Securities Exchange Listing Rules,

2021 are to the effect that for a company to list, there must be;

• 24. Approval of the Authority

• No securities shall be approved for listing on the Exchange without the

written approval of the Authority.
 Con’t……..
• 25. Directors and Senior Management

• 1) The directors and senior management of an Issuer shall collectively

have appropriate expertise and experience for the management of the
Issuer’s business.

• 2) Details of such expertise and experience shall be disclosed in listing

particulars prepared by the Issuer.
 Task 3 (Group 3)S
• ISSUE I WHAT REGULATORY REQUIREMENTS WILL IMARA
VENTURES NEED IN ORDER TO BE LISTED ON THE
UGANDA SECURITIES EXCHANGE?
• Imara Ventures (the company) is an existing Telecommunications
company in Uganda dealing in both voice and internet services is
interested being listed on the Uganda Securities Exchange.
• In order for company to be listed on the Uganda Securities Exchange on
either the Main Investment Market Segment (MIMS), the Fixed Income
Market Segment (FIMS) or on the Growth Enterprise Market Segment
(GEMS), it must comply with the requirements spelt out in the Uganda
Securities Exchange Rules 2021 and the Uganda Securities Exchange
Growth Enterprise Market Segment (GEMS) 2012.
• It should be noted that in order for a company to be eligible to list on
either market, it should first satisfy the minimum criteria set out in part
V, Rules 33 and 36 of the Uganda Securities Exchange Rules 2021.
 Con’t………
Schedule 7 of the Uganda Securities Exchange Rules 2021, provides
for the documents that accompany an application for admission to listing
and approved by the Exchange prior to granting the listing and they are
as follows;
i. Issuers Board resolution to list
ii. Capital Markets Authority approval letter
iii. Shareholders resolution
iv. Contracts entered into in connection with the Issue, underwriting
agreements if any;
v. Contracts with registrars where applicable;
vi. Certificate of Incorporation of the Issuer or any other incorporation
document;
vii. Declaration by the sponsoring broker in the form set out in the
schedule;
viii.Memorandum and Articles of Association of the Issuer or any other
constitutive documents;
ix. Draft Prospectus / Information Memorandum and copies of documents
provided for inspection pursuant to the proposed issue;
 Con’t………
x. Financial reports for the prescribed period
xi. A list of existing shareholders;
xii. Management Contracts if applicable;
xii. Specimen share certificate;
xiv. Letter of undertaking;
xv. sMaterial Contracts;
 Con’t………
Requirements for a company seeking to list on the Main Investment
Market Segment.
• A written approval from the authority. Rule 24 of the Uganda Securities
Exchange Rules 2021, specifies that no securities shall be approved for
listing on the Exchange without the written approval of the authority.
• Disclosure of the details of the directors and senior management’s
expertise and experience by the issuer as required under Rule 25 (1), (2)
and (3) of the Uganda Securities Exchange Rules 2021.
• Delivery of prepared of the issuer’s financial statements, independently
audited in accordance with the International Accounting Standards to
the Exchange as required under Rule 26 (1) of the Uganda Securities
Exchange Rules 2021.
 Con’t………
• Delivery of the issuer’s Memorandum and Article of Association to the
Exchange. Rule 27 (2) of the Uganda Securities Exchange Rules 2021,
states that no application shall be considered until the memorandum
and articles of Association or other constitutive document of the Issuer
has been received by the exchange.
• Give an undertaking to the exchange required under Rule 30 (1) of the
Uganda Securities Exchange Rules 2021, in the form of a resolution of
directors certified by its chairman, that it shall comply with the listing
rules and the rules of the Exchange as amended from time to time in so
far as they are applicable to the issuer.
• Rule 32 of the Uganda Securities Exchange Rules 2021, provides
for the particular requirements for a company to list on the Main
Investment Market Segment and they are as follows;
 Con’t………
 The issuer has to be a company limited by shares and incorporated under the
companies Act 2012 as a public Limited liability company, or if it is a foreign
company, it shall be registered under the relevant provisions of the
companies act Rule 32 (1)(a).
 The issuer shall have a minimum authorized, issued and fully paid-up share
capital of 50,000 currency points and net assets of 100,000 currency points
before the public offering of shares Rule 32 (1) (b)and;
 The issuer shall have published audited financial statements for a period of at
least 5 years complying with International Accounting Standards for an
accounting period ending on a date not more than six months prior to the
proposed date of the offer Rule 32 (1) (c).
 Where more than six months have elapsed since the issuer’s last accounting
period for which audited financial statements have been prepared, then the
issuer shall prepare a set of un-audited financial statements in accordance
with International Accounting Standards, for the period ending not longer
than three months from the date of the offer Rule 32 (2).
 The Issuer shall have prepared financial statements for the latest accounting
period on a going concern basis Rule 32 (3).
 At the date of application, the Issuer shall not be in breach of any of its loan
covenants Rule 32 (4).
 Con’t………
 The issuer must ensure that as at the date of the application and for a
period of at least 2 years prior to the date of the application, no
director of the issuer has been subjected to court proceedings either
adjudged as a bankrupt or has been discharged, has not been convicted
of any offence by a court of competent jurisdiction within 10 years
prior to the date of the application. This is a requirement under Rule
32 (5).
 The issuer is also required under Rule 32 (9) to comply with the
requirements of Appendix 1 which sets out the detailed disclosure
requirements for Main Investment Market Segment (MIMS) Public
offerings.
 Con’t………
Requirements for listing on the Fixed Income Securities Segment
(FISMS) other than government bonds.
 The Issuer shall be a company, a government, a local government or any
other body corporate. (Rule 34 (1)).
 The Issuer shall have net assets of 100,000 currency points before the
public offering of the securities. In the event that the Issuer does not
meet these net assets requirements, the Issuer shall obtain a guarantee
from a bank or other financial institution acceptable to the Exchange.
(Rule 34 (2)).
 The Issuer shall have published audited financial statements for a period
of three years complying with International Accounting Standards for an
accounting period ending on a date not more than six (6) months prior to
the proposed date of the offer. (Rule 34 (3)).
 If more than six (6) months shall have elapsed since the Issuer's last
accounting period for which audited financial statements were prepared,
the Issuer shall prepare a set of un-audited financial statements in
accordance with International Accounting Standards for the period
ending not longer than three months from the date of the offer. (Rule 34
(4)).
 Con’t………
 If an offer is made more than six months after the last audited
financial period, the applicant shall be obliged to publish un-audited
interim financial statements for the period ending not longer than
three months before the offer date. (Rule 34 (5))
 The Issuer shall have prepared financial statements for the latest
accounting period on a going concern basis and the audit report shall
not contain any emphasis of matter or qualification in this regard.
(Rule 34 (6))
 At the date of the application, the Issuer shall not be in breach of any
of its loan covenants. Rule 34 (7)
 The Issuer should have made profits in at least two of the last three
years preceding the issue of the Commercial Paper or the Corporate
Bond. In the event that the Issuer cannot meet this requirement, the
Issuer should obtain a guarantee from a bank or other financial
institution acceptable to the Exchange. Rule 34 (8)
 An Issuer wishing to issue or list debt securities shall not be insolvent
within the meaning of the Companies Act 2012 and any amendments
thereto. Rule 34 (9)
 Con’t………
 Total indebtedness of the Issuer, including the new
issue of the Commercial Paper or the Corporate
Bond shall not exceed 400% of the Issuer’s net
worth (or a gearing ratio of 4:1) as at the date of the
latest balance sheet. Rule 34 (10)
 The ratio of funds generated from the operations to
total debt the three trading periods preceding the
issue shall be maintained at a weighted average of
40% or more. Rule 34 (11)
 Con’t………
 The conditions as provided in subrules (10) and (11) shall be
maintained as long as the Commercial Paper or Corporate Bond
remains outstanding. Rule 34 (12)
 The directors and senior management of an Issuer shall have
collectively appropriate expertise and experience for the management
of the business. And the details of such expertise in relation to Rule 34
(13) of the rulesshall be disclosed in the issue information
memorandum.
 The Issuer should ensure as required under Rule 34 (14) of the rules,
that each director is free of any conflict of interest as provided for
under Appendix 3 of the Rules.
 Issuers shall comply with the requirements of Appendix 3 which sets
out the detailed disclosure requirements for companies seeking to list
on the Fixed Income Market Segment this is in accordance with Rule
34 (18) of the Rules.
 ISSUE 2
whether the company can successfully cross list in Uganda and what are the requirements thereto.
• Under part I pursuant to Rule 2 of the Uganda Securities Exchange Listing Rules, cross listing is defined as the listing or
intended listing of a security on the exchange which security is already listed on another stock exchange.

• The procedure for Cross Listing is embedded under Rule 17 of the Uganda Securities Exchange Listing Rules as follows;

• Under part I pursuant to Rule 2 of the Uganda Securities Exchange Listing Rules,
cross listing is defined as the listing or intended listing of a security on the exchange
which security is already listed on another stock exchange.

• The procedure for Cross Listing is embedded under Rule 17 of the Uganda Securities
Exchange Listing Rules as follows;

• It is important to note that only those issuers meeting the eligibility criteria for the Main
Investment Market Segment or equivalent segment in their home market shall be
eligible to be admitted to the Main Investment Market Segment of the official list and
shall be allowed to cross list.

• Secondly, all Applications for cross listing shall be accompanied by a prospectus

• A draft prospectus shall then be sent by the sponsoring broker to the markets of prior
listing.

• Consequently, the Authorities and Exchanges of those markets shall respond within ten
(10) business days with a confidential report on the applicant and a letter of no objection
or otherwise addressed to the exchange.
 Con’t…….
• It is further averred therein that all applicants must comply with the Main
Investment Market Segment provisions of these Rules.
• An applicant for cross listing is expected to provide such float that provides
such liquidity as may be deemed reasonable and agreed to by the exchange.
• Sub rule (2) of the Instant provision goes on to stipulate that on receipt of
written approval from the Authority, the Exchange may admit the shares.
• It is important to note that for cross listing to be successfully achieved, the
issuer must address the aspect of Introduction pursuant to Rule 19 of the
same. Introduction under part 1 rule 2 of the listing rules is defined as a
method of bringing securities to listing not involving an issue of new
securities or any marketing of existing securities, subject to compliance
with the condition of listing in the relevant market segment. Similarly,
Regulation 2(1) of Capital Markets (Cross Boarder Introductions)
Regulations, 2004 defines introduction as the listing of securities which
are already listed and trading on stock exchange in another jurisdiction. To
this effect, the issuer must comply with the conditions for listing set out in
part V and Appendix 1(b) of the Rules herein.
 Con’t…….
• Sub rule (2) of the instant rule essentially avers that an applicant for
listing by Introduction shall comply with the conditions and procedures
required for listing Securities on the Exchange and shall meet the
eligibility criteria for listing on the Main Investment Market
Segment (MIMS).
• Pursuant to Part V of the Uganda Securities Exchange Listing
Rules, Main Investment Market Segment (MIMS) refers to main
quotation market segment with stringent eligibility, listing and
disclosure requirements.
• Cognizant of the above statutory provisions, the company can
successfully cross list in Uganda.
 Con’t…….
• REQUIREMENTS FOR LISTING.

• Under part V Rule 32 of the Uganda Securities Exchange Listing Rules provides
for the requirements for listing on Main Investment Market Segment (MIMS);
• Subrule(1)(a) is to the effect that the issuer shall be a company limited by shares and
incorporated or registered under the Companies Act 2012 as a Public limited liability
company, or if it is a foreign company as purported by the instant facts, it shall be
registered under the relevant provisions of the Companies Act.
• Subrule(1)(b) goes on to guide that the issuer shall have a minimum authorized, issued
and fully paid-up share capital of 50,000 currency points and net assets of 100,000
currency points before the public offering of shares and,
• Subrule(1)(c) avers further that the issuer shall have published audited financial
statements for a period of at least 5 years in compliance with International Accounting
Standards for an accounting period ending on a date not more than six (6) months prior
to the propossed date of the offer.
• Subrule 3 provides that the issuer shall have prepared financial statements for the latest
accounting period on a going concern basis.
• Furthermore, the issuer shall not be in breach of any of its loan covenants pursuant to
subrule 4.
 Con’t…….
• Subrule 5 is to the effect that as at the date of the Application and for
of at least two (2) years prior to the date of application, no director
of the issuer;

a. May be or may have been adjudged bankrupt and subsequently been

discharged, or any winding up petition pending threatened against it
(for bodies corporate).
b. May have in the 10 years prior to the date of application, been
convicted of a felony; or
c. May have been the subject of any ruling of a court of competent
jurisdiction or any governmental body that permanently or
temporarily prohibits them from acting as director of a public issuer.
• Subrule 6 further stipulates that the issuer shall have declared positive
profits after tax attributable to shareholders in at least three (3) of the
last Five (5) completed accounting periods immediately prior to the
date of the offer.
 Con’t…….
• Immediately following the public shares offering, at least 20% of the
shares shall be he held by not less than 500 public shareholders
excluding the employees and Directors of the issuer pursuant to
subrule 7. The instant provision goes on to provide for exceptional
circumstances where a lower percentage may be accepted by the
exchange where the amount of securities of the same class and the
extent of their distribution would enable the market to operate properly
with a lower percentage.
• Subrule 8 requires that if an issuer wishing to be listed is subject by
law to the regulations of any regulatory Authority, the issuer shall
obtain a letter of no objection from the relevant regulatory
Authority.
• Subrule 9 avers that issuers shall comply with the requirements of
Appendix 1 which sets out the detailed disclosure requirements.
 Con’t…….
• DISCLOSURE REQUIREMENTS FOR MAIN INVESTMENT MARKET
SEGMENT (MIMS) PUBLIC OFFERINGS
• Below briefly elaborated are the disclosure requirements for Main Investment
Market Segment pursuant to Appendix 1;

1. Identity of the Directors, Senior Management and Advisers (i.e., persons

responsible for the information disclosed)
2. Offer statistics and expected timetable which includes a statement that the
Authority has approved the public offering and statement that the copy of the
prospectus has been delivered to the registrar of companies among others.
3. Information on the issuer which includes; the name, registered office and if
different, head office of the issue
4. Operating and financial review prospects (the recent development and
prospects of the group)
5. Information on Directors and Employees to entail the full name, age (or
date of birth), home or business address, nationality and function in the
group of each of the aforementioned persons and the indication of the
principal activities performed by them outside the group where these are
significant with respect to the group.
 Con’t…….
6. Major shareholders and related party transactions
7. Financial information entailing a statement that the annual accounts of the
issuer for the last 5 years have been audited and if reports on any of those
accounts have been refused by the auditors or contain qualifications, such
refusal or qualifications shall be produced in full and the reasons given.
8. The offer and listing which entails an indication whether or not all the shares
have been marketed or are available in whole or in part of the public in
conjunction with the application.
9. sInformation on vendors. The names and addresses of vendors of any assets
purchased or acquired by the issuer or any subsidiary issuer during the 5 years
preceding the publication of the prospectus or acquired, on capital account and
the amount paid or payable in cash or securities to the vendor, and where there is
more than one separate vendor, the amount so paid or payable to each vendor,
and the amount (if any) payable for goodwill or items of a similar nature. The
cost of assets to the vendors and dates of purchase by them if within the
preceding 5 years. Where the vendor is an Issuer, the names and addresses of
the beneficial shareholders, direct and indirect, of the Issuer if required by the
Exchange. Where this information is unobtainable, the reasons thereof are to be
stated.
 Con’t…….
• Having established the eligible criteria subject to Main Investments market
segments (MIMS), the issuer pursuant to Regulation 3 of the Capital markets
(Cross boarder introductions) Regulations, 2004 shall apply for approval of an
introduction. Whereby the application shall be accompanied by;

a. An information memorandum
b. A letter of No objection from the applicant’s primary regulator
c. A letter of No objection from the applicant’s primary exchange.
d. The fees specified in the Third Schedule.
• The contents of the Information Memorandum are stated below subject to
Regulation 4 of the Capital Markets (Cross boarder Listing)
Regulations,2004;
• (1) An Information Memorandum submitted to the Authority for approval of
• an Introduction shall contain the information specified in the Second Schedule.
• (2) The Authority may, in its discretion, waive, modify or dispense with
• any criterion specified in the First Schedule or any requirement to disclose any of
the information specified in the Second Schedule.
• (3) The Authority may require an applicant to furnish such further
 Con’t…….
• information or documentation, as the Authority may deem necessary for
purposes of the application for an Introduction.
• (4) An Information Memorandum shall not be published or distributed
• without compliance with any amendments, directions made or issued by
the
• Authority, unless any such amendments or directions have been
withdrawn inwriting by the Authority.
• (5) An Information Memorandum shall include a declaration by the
• Applicant stating that to the best of the applicant’s knowledge and belief
—
• (a) all the information required to be included in the Information
• Memorandum under these Regulations or by an amendment or
• directive made or issued by the Authority has been so included; and
• (b) there are no other facts bearing on the application, which in the
• applicant’s knowledge and belief should be disclosed to the Authority.
 Con’t…….
• Regulation 5 of the instant statutory provision provides for fees
wherein sub regulation 1 avers that the Authority shall not receive
any application for approval of the information Memorandum unless
it is accompanied by the prescribed fees.
• Sub regulation 2 goes on to state that the fees paid under these
Regulations are non-refundable notwithstanding;

a. The Authority does not approve the information memorandum.

b. The applicant withdraws the information memorandum before it is
approved.
• Pursuant to the instant facts, the company can successfully cross list
in Uganda if it heeds to the requirements and procedures discussed
hereinabove
•
 Issue 3
• Whether the board of directors can float another company to the public?
• Floating is the conversion of a private company into a public company by issuing
shares to the public.
• Section 90G of the Capital Markets Authority Act, requires that a person shall not
offer securities to the public for subscription and shall not issue or circulate a
form of application for securities without a prospectus which complies with the
Capital Markets Authority Act.
• The board members of Imara Ventures should first submit a prospectus to the
prescribed authority for approval as per part II 2(c) of the schedule to the Capital
Markets Authority (Prospectus Requirements) Regulations SI 84-2 as amended.
• Nash v Lynd (1929) AC 158, for a document to amount to a prospectus, not only
must it be delivered but also there must be some publicity with the aim of
inducing subscription.
• The prospectus delivered by Imara Ventures should contain the requirements as
per part I and II of the Capital Markets Authority (Prospectus Requirements)
Regulations.
• The board members of Imara Ventures cannot offer securities to the public for
subscription and shall not issue or circulate a form of application for securities
without prospectus which complies with the Capital Markets Authority Act
 Con’t…….
• The prospectus delivered by Imara Ventures has to comply with the
directions of the prescribed authority; ie, in an instance where the
applicant has to furnish other documents or amend the prospectus as
per Regulation 5 of the Capital Markets Authority (Prospectus
Requirements) Regulations.
• The board members of Imara Ventures shall accompany the prospectus
with a statement showing the financial performance of the issuer and
its subsidiaries during the preceding five financial years containing a
breakdown between the more important business activities as per part
III of the schedule to the Capital Markets Authority (Prospectus
Requirements) Regulations.
• The applicant for the prospectus Imara Ventures shall issue a
declaration to the Capital Markets Authority declaring that the
provided information is true to the best of the applicant’s knowledge.
• The board members of Imara Ventures shall pay the requisite fees (part
iv of the schedule to the regulations) for approval of the prospectus by
the Capital Markets Authority.
 Con’t…….
• The prospectus shall then be approved by the Capital Markets
Authority for it to be published by the board members of Imara
Ventures.
• However, the Capital Markets Authority has power to suspend or
cancel the approval of a prospectus. This arises where it subsequently
discovers that a registered prospectus is false or misleading in a
material particulars, omits any material particulars, does not comply
with the Act or regulation or in case of a listed issuer who does not
comply with the listing rules.
• Imara Ventures can carry out the publication by way of advertisement
in papers, inserting in newspapers, distributing free copies of the
prospectus to the public r posting the prospectus on the company
website.
• Therefore, the board members of Imara Ventures can now float
another company to the public after following the above stated
procedure.
•
 ISSUE 4
• How would the syndicate lenders both under the venture capital fund and a
private equity fund) involved with Otis capital markets protect their interests?

• Ham Enterprises Limited and 2 Others v Diamond Trust Bank (U) Limited
and Another (Civil Appeal 13 of 2021)

• It was held that the relationship between these two banking institutions (DTB-U
and DTB-K), and between them and Ham, with regard to the financial credit
transactions, were neither governed by the Financial Institutions Act, 2004, as
amended, nor the Financial Institutions (Agent Banking) Regulations, 2017. This
was a syndicated agency relationship between DTB-U and DTB-K.

• There is no law that forbids the creation of the syndicated agency relationship
entered by DTB-U and DTB-K. Similarly, no law forbids foreign financial
institutions from extending credit facilities to any financial institution or person in
Uganda. If anything, in furtherance of international trade and investment, financial
institutions the world over are known to engage in global financial business
transactions by dealing with, or through, financial institutions based in other
jurisdictions. In the case of Uganda, such international financial business
transactions are certainly neither governed by the Financial Institutions Act, 2004,
as amended, nor the Financial Institutions (Agent Banking) Regulations, 2017. The
trial judge therefore erred in holding that the credit agreements between the parties
were clothed with illegality.
 Con’t……….
• In a syndicated lending scenario involving both a venture capital (VC) fund
and a private equity (PE) fund, some considerations for protecting their
respective commercial interests include the following;

• Clear Agreement Terms: Lenders should ensure that the syndication

agreement clearly outlines the terms and conditions of the venture debt,
specifying the rights, obligations, and responsibilities of each party involved.
They should clearly define the roles of the venture capital fund and private
equity fund, including decision-making authority, voting rights, and exit
strategies.

• Risk Allocation: syndicate lenders should also clearly identify and allocate
risks among themselves. This includes risks associated with the venture itself,
market conditions, and any potential default scenarios. In the agreements,
provisions for risk mitigation strategies and decision-making processes in case
of unforeseen circumstances should be expressly included.

• Confidentiality and Information Sharing: Establish protocols for

confidentiality and information sharing. Define what information is
considered confidential and how it should be treated to protect sensitive
business data.
 Con’t……….
• Exit Strategies: Clearly outline exit strategies for each syndicate member. This
includes provisions for selling or transferring their share of the venture debt, as
well as mechanisms for handling changes in ownership or control.

• Governing Law and Dispute Resolution: Specify the governing law to be applied
in case of disputes. Determine the jurisdiction for dispute resolution and establish
mechanism for resolving conflicts efficiently.

• Monitoring and Reporting: Implement regular monitoring and reporting

mechanisms to keep all syndicate members informed about the performance and
financial health of the venture.

• Define reporting requirements and frequency to ensure transparency among the

syndicate members.

• Collateral and Security Interests: Clearly define the collateral and security
interests associated with the venture debt. Establish how these interests will be
shared or prioritized among the syndicate members.

• Default Scenarios: Develop a comprehensive framework for handling default

scenarios. Clearly outline the steps to be taken a case of a default, including
potential remedies and enforcement mechanisms.
 Con’t……..

Since there is no law that governs syndicated transactions in Uganda

lending institutions should look at registration of charges under section
105,106 and 107 of the company’s Act and regulations 26 of the
company’s regulations 2023 in order to protect their interests

The documents that usually protect the interests of the PE and VC are:

 Term sheet
 Share pledge agreement

 Term sheet

• A term sheet is a nonbinding agreement that shows the basic terms and
conditions of an investment. The term sheet serves as a template and
basis for more detailed, legally binding documents. Once the parties
involved reach an agreement on the details laid out in the term sheet, a
binding agreement or contract that conforms to the term sheet details is
drawn up.
 Con’t………
• Term sheets are most often associated with startups. Entrepreneurs find this
document crucial for investors, often VCs (VC), who may offer capital to fund
startups.
• A term sheet used as part of a merger or attempted acquisition would typically
contain information regarding the initial purchase price offer, the preferred
payment method, and the assets included in the deal. The term sheet may also
contain information regarding what, if anything is excluded from the deal or any
items that may be considered requirements by one or both parties.
• The company valuation, investment amount, percentage stake, voting rights,
liquidation preference, anti-dilutive provisions, and investor commitment are
some items that should be spelled out in the term sheet.

Share pledge agreement

• A pledge of shares agreement or Pledge And Security Agreement is an agreement

between a lender and a borrower where the borrower agrees to contribute their
membership interest in the borrowing entity, such as an LLC to the lender in the
event of default. This allows the lender to take control of the entity in order to
liquidate the property and recoup the principal loan balance in a timely manner.
• https://www.offermarket.us/real-estate-glossary/pledge-of-shares
THANK YOU…..