Abuse of the concept of legal personhood: the case of single-member companies

Abstract

This study examines the implications of granting legal personhood to single-member companies (SMCs) within Uganda’s corporate framework. The enactment of the Companies Act, Cap 106, which permits individuals to establish companies independently, marks a significant reform intended to expand entrepreneurial opportunities and formalize sole proprietorships. While SMCs offer notable benefits, including limited liability, simplified entry into the formal economy, and enhanced access to credit, their unique structure raises complex concerns about governance, accountability, and potential misuse of corporate personality. The research employs a qualitative doctrinal methodology, relying on statutory analysis, case law, and secondary sources to examine the principles of corporate legal personality and the doctrine of piercing the corporate veil in Uganda. It also includes a comparative component, drawing lessons from the United Kingdom, South Africa and Nigeria that recognize and regulate single-member companies. Key findings indicate that although Uganda’s Companies Act provides for SMCs, weak enforcement, limited regulatory capacity, and concentrated shareholder control heighten the risk of abuse. Common abuses include misuse of company assets, fraudulent transactions, and evasion of liabilities, often facilitated by blurred lines between personal and corporate identities. A comparative analysis shows that jurisdictions with stronger disclosure requirements, creditor protections, and director accountability measures are better equipped to mitigate these risks. This dissertation addresses a critical research gap: the limited scholarly and policy attention given to SMC vulnerabilities in Uganda’s developing economy. By highlighting the inadequacies of current governance and enforcement structures, the study underscores the need for targeted reforms—such as stricter reporting obligations, enhanced regulatory oversight, and adoption of international best practices—to safeguard the integrity of corporate personhood in single-member entities.