An assessment of the efficiency and effectiveness of the legal and regulatory framework governing capital markets in protection of minority shareholders in Uganda

Abstract

The effectiveness of Uganda's legislative and regulatory framework in defending the interests of minority shareholders in capital markets was investigated in this study. Using a qualitative research approach with exploratory and descriptive study designs, the study collected insights from stakeholders, including officials from the National Insurance Company (NIC), legal advocates, representatives from the Capital Markets Authority (CMA), and scholars. The study's three primary objectives were to assess how successfully Ugandan laws protect the rights of minority owners, comprehend the experiences of minority shareholders in particular businesses, and draw lessons from other countries' legal systems to enhance Uganda's own procedures. The results demonstrate the advantages and disadvantages of Uganda's legal system. While existing laws promote transparency and accountability, enforcement is inconsistent, and some laws are outdated in today’s fast-changing business environment. The legal framework has been effective in preventing major fraud, but minority shareholders still face challenges such as unresolved complaints, limited participation in Annual General Meetings (AGMs), and inadequate access to key information. These issues reduce the ability of minority shareholders to protect their interests and participate meaningfully in corporate decisionmaking. The study also highlighted the struggles minority shareholders face due to inadequate legal protection. They often experience marginalization, restricted access to information, and limited grievance resolution options. This lack of empowerment discourages investors, slows the growth of capital markets, and weakens the fairness of corporate governance. Learnings from other jurisdictions' legal systems, including the Sarbanes-Oxley Act in the USA, the OECD Code, South Africa's King IV report, and the UK Corporate Governance Code demonstrate the importance of strong shareholder protection for improving corporate practices, attracting investments, and maintaining investor trust. Based on these findings, the study offers several recommendations to improve shareholder protection in Uganda. These include regularly updating laws, creating better grievance mechanisms, ensuring more inclusive AGMs, improving transparency, educating investors, and introducing fair exit opportunities for minority shareholders. Other suggestions include strengthening accountability measures, promoting legal reforms, and increasing stakeholder collaboration. By adopting these recommendations, Uganda can create a fairer and more transparent corporate environment, boosting investor confidence and encouraging financial market growth.