Business Shareholder Dispute under East African Law

A practical comparison of partnership breakdowns, shareholder remedies, company governance and lawful exits across the eight EAC Partner States.

Contents

What the dispute is really about

The eight EAC systems are not one company law system

An agreement should plan the first serious disagreement

The claim must match the loss

Oppression, unfair prejudice and the lawful exit

What regional law can and cannot do

How a lawyer helps before and during the breakup

The practical rule

What the dispute is really about

A business conflict rarely begins with a court form. It begins when the founders stop agreeing about what the business is for, who should make the next decision, or whether money has been taken out fairly. One founder may believe that an equal contribution deserves an equal vote. Another may point to the share register and say that voting follows the shares. These are not the same legal dispute, even though they may appear in the same quarrel.

The first task is to identify the legal relationship. A partnership is built on agreement, mutual confidence and agency. Each partner may bind the firm in the ordinary course, and duties of honesty, accounting and loyalty matter from the beginning. A company is a separate legal person. Its assets belong to the company, not directly to its shareholders. Directors manage the company within the powers given by the applicable Companies Act, the articles and the shareholders' resolutions. A shareholder has rights as a member, but does not automatically own a slice of each company asset.

That distinction explains why the same event can produce different remedies. If a director diverts a company opportunity, the company may have the claim. If a majority blocks a member from voting, withholds information or uses control to force the member out, the affected member may have a personal claim for unfair prejudice or oppression, depending on the country. If a founder breaks a written promise to transfer shares or contribute capital, the agreement may be the most direct route. A lawyer who starts with the remedy before classifying the relationship can put a good case in the wrong procedural box.

The eight EAC systems are not one company law system

The East African Community now has eight Partner States: Burundi, the Democratic Republic of the Congo, Kenya, Rwanda, Somalia, South Sudan, Tanzania and Uganda. The EAC Treaty supports cooperation, the rule of law and regional integration, but it does not replace the company legislation of those states. A shareholder agreement for a company incorporated in Kampala is not made into a Rwandan agreement merely because the investors live in Kigali and Nairobi.

Kenya uses the Companies Act 2015 and the Partnership Act 2012. The Companies Act contains a modern statutory derivative action and protection against conduct that is unfairly prejudicial to a member. The Constitution of Kenya 2010 protects property, equality, fair administrative treatment and access to justice, while Article 159 encourages alternative dispute resolution where appropriate. These provisions support a careful claim, but they do not remove the need to satisfy company-law procedure.

Uganda applies the Companies Act 2012 and the Partnership Act 2010. The Companies Act recognises minority protection and derivative proceedings, including the requirement for court permission in the circumstances described by the Act. The Constitution of Uganda 1995 protects property, association and a fair hearing. In practice, Uganda's Commercial Court is often asked to decide whether the claimant is suing personally or on behalf of the company, whether the claim is premature, and whether the pleadings disclose a real dispute rather than a general complaint about management.

Tanzania's principal statute is the Companies Act 2002, Cap 212, as revised. Section 233 is important because it gives a member a route to complain that the company's affairs are being conducted in a manner that is unfairly prejudicial. The Act also regulates directors, meetings, accounts, share transfers and winding up. Mainland Tanzania and Zanzibar must not be treated as though every procedural detail is identical. The governing law, place of incorporation, forum clause and location of the company records should be checked before proceedings are filed.

Rwanda's main corporate statute is Law No. 007/2021 of 5 February 2021 Governing Companies, read with later amendments and the relevant commercial procedure rules. It provides the framework for incorporation, shares, directors, meetings, records and corporate decision making. The Constitution of Rwanda protects property and access to justice. A practical Rwandan agreement should therefore connect the commercial bargain to the company's articles and to properly recorded resolutions. An informal promise between founders is evidence, but it is a weaker governance system than a signed agreement supported by the company records.

The Democratic Republic of the Congo applies the OHADA framework, especially the Uniform Act relating to commercial companies and economic interest groups. That is a material difference from the common-law pattern used in Kenya, Uganda and Tanzania. The OHADA Uniform Act addresses company forms, directors, shareholder decisions, agreements between shareholders and actions brought in the interest of the company. The OHADA Court of Justice and Arbitration, rather than the East African Court of Justice, is the regional judicial institution that normally interprets OHADA commercial law.

Burundi has its own constitutional and commercial framework, with company law influenced by civil-law drafting and regional business-law harmonisation. The current company instruments, registry practice and language of the constitutional documents should be checked in the Official Gazette. Somalia operates under a developing federal commercial framework, including the Companies Act and company-law regulations administered through the national business-registration system; regional authorities may create additional practical questions. South Sudan's Companies Act 2012 is the principal corporate statute, supported by business-registration rules and constitutional protections for property and lawful economic activity. In these states, the lawyer's first value is often legal mapping: identify the current text, registry, court and language in which the contract will be enforced.

The comparison has a simple conclusion. The names of the remedies travel across borders, but their procedure does not. A lawyer should never copy a Kenyan derivative-action pleading into a DRC, Rwandan, Burundian, Somali or South Sudanese file without checking the local statute and forum.

An agreement should plan the first serious disagreement

A shareholders' agreement is not a document for the day when everyone is still enthusiastic. It is a document for the day when enthusiasm has stopped doing the work of governance. The agreement should state what each person contributes, whether the contribution is cash, equipment, intellectual property, contacts or full-time work, and what happens if that contribution is delayed or never made. It should distinguish shares from salary, director fees, reimbursement and dividends. Confusing those categories is a common source of accusations about hidden profits.

The governance section should identify ordinary decisions, reserved matters and emergency decisions. Reserved matters may include issuing new shares, borrowing above an agreed limit, selling a substantial asset, changing the business, appointing a related-party supplier, opening a foreign branch or taking on a new investor. The document should say what vote is required and how a conflicted shareholder is treated. A promise to consult is not the same as a veto. A 50 percent shareholder may have economic equality without having a casting vote.

Deadlock clauses need more thought than a requirement to meet and negotiate. A useful sequence may require a management meeting, a short period of internal mediation, an independent expert on a defined technical question and then a buyout or arbitration mechanism. It should state who may trigger the process, what happens to bank mandates and essential operations during the deadlock, and whether either party may seek an urgent court order to preserve assets or records.

The exit clause is the part most founders postpone. It should address death, incapacity, insolvency, serious misconduct, retirement, a third-party offer and a prolonged deadlock. It should explain how the shares or partnership interest will be valued, whether minority or control discounts are excluded, how debt owed to the business is treated, and whether payment may be made in instalments. A buyout formula without a valuation procedure is only half an agreement. A right of first refusal without a timetable can become another dispute.

For a partnership, the agreement should add rules on authority, drawings, capital calls, admission of a new partner, expulsion where legally permitted, retirement, dissolution and the preparation of final accounts. It should also say who owns the name, customer list, work product and intellectual property after a partner leaves. A partner who helped create the business may feel that the business is personally theirs. The legal question is what the partnership agreement and applicable statute say about the firm's property and the partner's account.

The claim must match the loss

The most important distinction in shareholder litigation is between a company loss and a personal shareholder loss. If directors sell a company asset cheaply, divert a company opportunity or cause the company to pay an improper expense, the immediate victim is normally the company. The fall in the value of a shareholder's shares may be a consequence, but it is not automatically a separate personal loss. The claim will ordinarily need to be brought by the company or through a derivative procedure in which the shareholder acts for the company.

The rule is illustrated by the Ugandan Commercial Court in Bank of Uganda and Another v Kaweesi and Others, Miscellaneous Application 1047 of 2022, decided in 2023. Justice Stephen Mubiru separated claims belonging to the company from claims that could properly be advanced by shareholders. The court treated a shareholder derivative claim as possible in relation to alleged liquidator misconduct, but struck out claims concerning separate associated companies where the pleadings did not explain the company-specific wrongdoing, the control of the wrongdoers and the basis on which a shareholder could sue for those companies. The practical advocacy lesson is exactness. A pleading should name the company that suffered the wrong, identify the duty, show who controls the decision and explain why the company will not sue itself.

The same case also shows why an apparently technical point can decide a large commercial claim. A shareholder cannot simply list every loss in a group of related companies and call it one corporate injury. Separate legal personality is not erased by common ownership, a shared bank account or a family relationship. Counsel who does not separate the entities may lose part of an otherwise serious case before evidence is heard.

In Kenya, Ghelani Metals Limited and 3 Others v Elesh Ghelani Natwarlal and Another, Civil Suit 102 of 2017, is a useful warning about derivative procedure under the Companies Act 2015. The court explained the difference between a member's personal grievance and a derivative claim brought for a wrong done to the company, and emphasised the need to approach the court for permission where the statute requires it. The lesson is not that a minority shareholder is powerless. It is that the lawyer must choose the correct claimant, identify the corporate cause of action and ask for the remedy that belongs to the company.

Uganda's Byrne v Madhivani and 3 Others, Civil Suit 9 of 2022, decided by the High Court in 2024, offers a different lesson. The court refused to dispose of the case at the preliminary stage where a director-shareholder pleaded a 50 percent shareholding, management problems, a deadlock and oppression. The claim was allowed to proceed because the pleadings raised factual issues that could not fairly be resolved by a bare objection. The advocacy that helped the claimant was the decision to plead the personal effect of the conduct, not merely a fall in company value. A lawyer representing the defendants would have needed to show why the facts, even if accepted, could not amount to a personal statutory grievance.

These cases also reveal what may be missing when a party loses. A claimant may say, "I built this company," but fail to produce the signed agreement, share register, minutes, bank records, notices of meetings or valuation evidence. Another may allege fraud without identifying the transaction, the person who authorised it and the loss that followed. Courts decide legal claims through pleaded facts and admissible evidence, not through the emotional history of a founder. Where a judgment does not record counsel's private strategy, it would be wrong to invent one. The safer training lesson is to identify the legal gap visible in the pleadings and holding.

Oppression, unfair prejudice and the lawful exit

A minority shareholder does not need to prove that the majority acted like a criminal before asking for protection. The statutory question is usually whether the company's affairs have been conducted in a way that unfairly prejudices, oppresses or unfairly disregards the member's interests. The exact language differs by statute. The evidence may include exclusion from an agreed management role, refusal to provide information, diversion of business to a related company, selective payment of benefits, an issue of new shares designed to dilute one member, or a meeting held without the notice required by law or the articles.

The remedy is not always an order that the company continue exactly as before. Depending on the statute, the court may regulate future affairs, restrain an act, require a purchase of shares, order a correction of records or make a winding-up order. A buyout is often more commercially sensible than a permanent judicial supervision of two founders who no longer trust each other. But valuation is not a reward for the louder party. It should be tied to the agreement, the statutory remedy, the accounts, the company's real assets and the date chosen by the court.

The partnership equivalent is often an account, injunction, dissolution or an order concerning partnership property. A partner who leaves may still be entitled to an account, but may also remain exposed to obligations created before notice of dissolution reaches third parties. This is why the exit plan must include customer notices, bank mandates, licences, leases, tax filings and custody of books. The corporate breakup is not complete when the founders stop speaking. It is complete when the legal entity, assets, authorities and records have been dealt with in an orderly way.

What regional law can and cannot do

The East African Court of Justice is not a general appeal court for private shareholder disputes. Article 27 of the EAC Treaty concerns the Court's jurisdiction over interpretation and application of the Treaty, while Article 32 provides for arbitration in the circumstances set out by the Treaty. A private company cannot ordinarily turn a domestic dispute about dividends, director removal or share valuation into an EACJ case simply by adding a regional label.

Regional jurisdiction may matter where a dispute genuinely concerns an EAC institution, a Treaty obligation, a cross-border measure governed by Community law or a commercial agreement that validly confers the relevant arbitral jurisdiction. Otherwise, the lawyer should file in the national court or arbitral forum selected by the company's documents and applicable law. The EAC Treaty, the Common Market Protocol and national investment and company laws may still help explain the cross-border setting, but they do not silently replace the incorporation state's law.

Dissenting judgments deserve a practical, not ceremonial, reading. A dissent does not become the enforceable holding merely because its reasoning is attractive. It can, however, expose the exact legal choice that divided the judges: whether the claim is personal or derivative, whether a procedural defect is curable, whether a remedy protects the company or a member, or whether a regional court has jurisdiction. Counsel can use that reasoning to frame an appeal, ask a later court to reconsider the issue, distinguish the majority's facts or advise a client about litigation risk. The responsible article and the responsible lawyer must label a dissent as persuasive reasoning, not present it as settled law.

How a lawyer helps before and during the breakup

A lawyer's best work may occur before the dispute becomes visible. The lawyer can align the articles with the shareholders' agreement, record the founders' contributions, check whether intellectual property has been assigned to the company, create a reserved-matters schedule and test the exit clause against a realistic valuation. The lawyer can also establish an information routine: monthly management accounts, annual budgets, minutes, related-party disclosures and a secure record of approvals. Good records reduce the space in which suspicion grows.

When conflict begins, the lawyer should preserve the evidence without encouraging unlawful access to phones, email or private accounts. The material may include the register of members, articles, agreements, board minutes, notices, voting records, bank statements, invoices, tax filings and contracts with related parties. An early internal mediation can clarify whether the real objective is information, payment, control or exit. Mediation can convert a personal quarrel into a documented commercial settlement.

If court action is necessary, counsel should decide whether the client needs an injunction, an account, a derivative claim, an unfair-prejudice petition, enforcement of a contract, dissolution or a combination. The application should explain urgency, identify the asset or decision at risk and propose an order a judge can supervise. A request to "stop the abuse" is weaker than a request to restrain a specified transfer until a named meeting is lawfully held and the company records are produced.

In cross-border businesses, the lawyer should check the governing law, arbitration clause, seat of arbitration, language, service rules, recognition of judgments, location of assets and status of each subsidiary. The agreement should not give one country as governing law and a different country as the exclusive court without understanding how that combination will work in practice. A cross-border exit is a transaction as well as a dispute. It may require share-transfer filings, tax advice, regulatory approval, foreign-exchange compliance and a carefully drafted release.

The practical rule

A partnership or shareholder conflict becomes manageable when the parties can answer four questions: What is the legal relationship? Who suffered the legal wrong? Who is entitled to bring the claim? What remedy will end or repair the dispute? The answers are different for a partnership account, a derivative company claim and an unfair-prejudice complaint.

The safest agreement is therefore not the longest agreement. It is the one that records contributions, decision rights, information rights, conflicts, deadlock and exit in language that the founders can use when trust is under pressure. The safest lawsuit is not the angriest one. It is the one that places the right facts before the right court, by the right claimant, for a remedy the law can grant.

For an ordinary business owner, the advice is practical. Do not wait for the first serious disagreement to discover who owns the brand, who controls the bank account, how a director may be removed, how shares will be valued or which court can hear the dispute. Those questions are cheaper to answer while the business is still working. Once the business has split into rival camps, the lawyer is no longer merely drafting an agreement. The lawyer is trying to preserve value while finding a lawful way for people who no longer want to work together to stop doing so.

Ronald Serwanga is a Ugandan legal researcher and an advocate admitted to the Rwanda Bar. He writes for East Africa Legal Insight.

This business legal training article provides general legal information and comparative orientation. It does not replace advice on a particular company, partnership, transaction, court filing or current statutory amendment. The law and procedure should be checked in the relevant jurisdiction before action is taken.

Sources Mentioned in This Training Article

East African Community Treaty; EAC Secretariat, EAC Partner States; Constitution of Kenya 2010; Companies Act 2015 and Partnership Act 2012 of Kenya; Constitution of Uganda 1995; Companies Act 2012 and Partnership Act 2010 of Uganda; Constitution of the United Republic of Tanzania 1977; Companies Act 2002, Cap 212 of Tanzania; Constitution of Rwanda 2003 as revised; Law No. 007/2021 Governing Companies of Rwanda and later amendments; OHADA Uniform Act relating to commercial companies and economic interest groups; Companies Act 2012 of South Sudan; Somalia Companies Act and company-law regulations; applicable Burundian company legislation and Official Gazette materials; Ghelani Metals Limited and 3 Others v Elesh Ghelani Natwarlal and Another, Civil Suit 102 of 2017; Bank of Uganda and Another v Kaweesi and Others, Miscellaneous Application 1047 of 2022, [2023] UGCommC 47; Byrne v Madhivani and 3 Others, Civil Suit 9 of 2022, [2024] UGHC 346; Foss v Harbottle; Salomon v A Salomon and Co Ltd; and the published jurisdictional materials of the East African Court of Justice and OHADA Court of Justice and Arbitration.

Suggested Citation

Ronald Serwanga, "Business Shareholder Dispute under East African Law" East Africa Legal Insight (23 September 2026).