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TYPES OF COMPANIES - ( COMPANY LAW)

busines law , company law

There are various ways by which companies may be classified. Companies may be classified on the basis of ownership or members, on the basis of liability, on the basis of control and on the basis of incorporation

On basis of ownership/members: Public and Private Companies

1.)    Public Company means a company, which is not a private company.
      Basic Characteristics
      a. The general public is allowed to subscribe for membership on fulfilling of few general conditions. The minimum number of members is seven.
     b. It can not commence business unless it obtains a certificate of commencement of business] c. The memorandum of public company shall state that it is a public company
     d. Transfer of shares is free.
 Under the Companies Act a public company is the company limited by shares or guarantee and having a share capital, being a company the memorandum of which states that it is to be a public company.

2.)    Private Company
    This is normally what Americans call a close corporation. A private company (sometimes refereed as to quasi- partnership company) is in nature of a partnership of persons with mutual confidence in each other and its articles place positive restrictions on absolute transfer of shares. See S. 27 of Cap 212.

      Basic characteristics
   a. Restricted membership. Section 27(1) (b) of Cap 212 limits the number of its members to fifty. In determining this number of 50, employee-members and ex-employee members are not to be considered.
b. Restricts the right of members to transfer its shares S. 27(1) (a) of Cap 212 c. Prohibits any invitation to the public to subscribe to any shares in or the debentures of the company. S. 27(1) (c) of Cap 212. The Companies Act, 2002 creates an offence for a private company which is not a private company limited by guarantee and not having a share capital to offer to the public (whether for cash or otherwise) any shares in or debentures of a company.

S 28 of the Act states that if a private company alters its articles such that they no longer include the provisions required for a private company (s.27), the company shall on the date of the alteration, cease to be a private company and shall amend its memorandum to state that it is a public company. The company should, within 14 days send notification to the registrar who shall issue a certificate to the effect that the company is the public company.

On the basis of liability: Limited and Unlimited companies

 Companies may be limited or unlimited companies. Company may be limited by shares or limited by guarantee. "Limited Liability" - this refers to the liability of the members, not the liability of the company. The company will always be liable to the full extent of its debts.

(a) Company limited by shares (s.3(2)(a) of Cap 212
(i) The most common kind of registered company.
(ii) Members of the company take shares issued by the company. Each share is assigned a nominal value - the amount that must be paid to the company for the share.
(iii) When the company is registered, its memorandum must state the total nominal value of all the shares it is going to issue (called the registered capital, or nominal capital or authorized share capital). The memorandum also states the number of shares to be issued: e.g. 10,000 shares of Tshs. 100 each = registered capital of Tshs. 1,000,000.
(iv) Liability of a member (shareholder), when the company is wound up is limited to the amount, if any, on the nominal value of his shares that has not been paid. No member of company limited by shares can be called upon to pay more than the face value of shares or so much of it as is remaining unpaid.
(v) Shares are normally partly or fully paid for when issued, so company will have a contributed capital.

b) Company limited by the guarantee.

S. 3(2)(b) of Cap 212 A company limited by guarantee is a registered company having the liability of its members limited by its memorandum of association to such amount as the members may respectively thereby undertake to pay if necessary on liquidation of the company. Members agree to contribute a specified amount to the company’s assets in the event of the company being wound up. (Total amount payable by all members is called the "guarantee fund"). Companies limited by guarantee are not usually formed for business ventures
The liability of members to pay the guaranteed amount arises only when the company has gone into liquidation and not when it is a going concern. Members, therefore, do not have to pay anything as long as company is a going concern - so company has no contributed capital.

C. Unlimited Company: S.3(2)(c)

The liability of members of an unlimited company is unlimited. Therefore their liability is similar to that of the liability of the partners of a partnership firm. The following are basic characteristics of unlimited companies
I.      Members have unlimited liability (If company is being wound up, members can be made to contribute to the company’s assets without limit to enable it to pay its debts.)
II.     Cannot be public companies. III. Can be set up with or without a share capital.
III.    Not subject to the same restrictions on alteration of capital as other types of company, and do not normally have to file annual accounts.

On the basis of control (Holding and Subsidiary companies)

When a company has control over another company it is known as a holding company. The company so controlled is known as a subsidiary company. A company shall be deemed to be subsidiary of another company if: -
1. That other company controls the composition of its board of directors; or
2. That other company holds more than half in face value of its equity share capital
3. Subsidiary of another subsidiary. Where the company is a subsidiary of another company which is itself a subsidiary of the controlling company, the former becomes the subsidiary of the controlling company e.g. Company B is subsidiary of the Company A and Company C is subsidiary of Company B, therefore Company C is subsidiary of Company A.

The control of the composition of the Board of Directors of the company means that the holding company has the power at its discretion to appoint or remove majority of directors of the subsidiary company without consent or concurrence of any other person. In determination whether one company is subsidiary of another, shares held or powers exercisable in the following cases shall not be taken into account.
a) Any shares held or power exercisable by the other company in fiduciary capacity
b) Where shares are held or power is exercisable by any person by virtue of the provisions of any debenture or of a trust deed for securing any issue of such debentures; and
c) Where shares are held or power is exercisable by lending company by way of security only for the purpose of a transaction entered into in the ordinary course of that business You may also refer to section 487 of the Companies Act.

On the basis of incorporation

(1)   Statutory:
 These are companies created by special Act of the legislature. Such companies are generally formed to carry out some special undertakings. These companies are owned by the government and the main objectives of these companies are to provide some necessary services for the benefit of the entire country. The provisions of companies Act may apply if not inconsistent with the special Act.
S.2 of the Companies Act defines Statutory Corporation as the meaning given in the public corporations Act: ''public corporation'' means any corporation established under the Public Corporation Act or any other law and in which the Government or its agent owns fifty one percent or more of the shares but does not include an institution of learning, a district development corporation, a research institution or a sports institution;

 (2) Registered:
These are Companies formed and registered under Companies Act 2002, Cap 212. Such companies come into operation only when they are registered under the Act and the certificate of incorporation has been issued by the registrar. Such companies derive their powers from the Companies Act, memorandum and articles of associations.

(3) Unregistered Companies – S.425 of Companies Act, 2002

(4) Foreign Companies means a company incorporated in a country other than Tanzania under the law of that other country and has established the place of business in Tanzania. According to S.433 of the Companies Act, foreign companies are companies incorporated outside Tanzania, which, after the appointed day, establish a place of business within Tanzania and companies incorporated outside Tanzania which have, before the appointed day, established a place of business within Tanzania and continue to have a-place of business within Tanzania on and after the appointed day.
A foreign company shall not be deemed to have a place of business in Tanzania solely on account of its doing business through an agent in Tanzania at the place of business of the agent. According to section 434 of the Companies Act, Foreign companies which, after the appointed day, establish a place of business within Tanzania shall, within thirty days of the establishment of the place of business, deliver to the Registrar for registration –

(a) a certified copy of the charter, statutes or memorandum and articles of the company or other instrument constituting or defining the constitution of the company, and, if the instrument is not written in the English language, a certified translation thereof,

(b) a list of the directors and Secretary of the company containing the following particulars; his present name and surname and any former name or surname, his usual address, his nationality and his business occupation, if any; Provided that, where all the partners in a firm are joint secretaries of the company, the name and principal office of the firm may be stated instead of the particulars mentioned

(c) a statement of all subsisting charges created by the company, being charges of the kinds set out in section 99 and not being charges comprising solely property situate outside Tanzania;

(d) The names and addresses of one or more persons resident in Tanzania authorised –
         (i) To accept on behalf of the company service of process and any notices required to be served on the company, and
        (ii) To represent the company as its permanent representative for the place of business, including a statement as to the extent of the authority of the permanent representative, including whether he is authorized to act alone or jointly.

(e) the full address of the registered or principal office of the company, and the full address of the place of business in Tanzania;

(f) a statutory declaration made by a director or Secretary of the company stating the date on which the company's place of business on Tanzania was established, the business that is to be carried on and, if different from the registered name of the company, the name under which that business is to be carried on;

(g) a copy of the most recent accounts and related reports of the company including, where such are not in English, a translation of the same. On the registration of the documents specified above, the Registrar shall certify under his hand that the company has complied with the provisions of that section and such certificate shall be conclusive evidence that the company is registered as a foreign company. This certificate is commonly known as “Certificate of Compliance”.

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Distinction between Sole Proprietorship, a Partnership & a Company

busines law , company law

 Sole Proprietorship:

This is an individual carrying on business either in his own name or in an assumed name which is usually referred to as the Trade Name. For example: Mr.Kagya buys diamonds from Kenya and sells it to Malawi. He does so in his own name. The law permits Mr. Kagya to make his purchases of diamonds and to sell it to any person whether in Tanzania or elsewhere. As with any business he will have a capital, some assets, liabilities from time to time and profits or losses. As with all business, if need be, he is required to register his business under the Business Names Registration Ordinance and any other relevant law. He is required to file tax returns and he is taxed on his profits. He merely has to satisfy the Tanzania Revenue Authority of the extent of his profit or loss from his own balance sheet, which need not be audited. The TRA may require him to audit his balance sheet if there is suspicion as to his income or expenses. As the business grows Mr. Kagya may hire employees, consultants, and establish branch offices. In all respects Mr.Kagya is running a business but is not a company. Mr. Kagya may at the beginning adopt a trading name or register a trading name later. For example he may call is business “Nshomi Trading Company”. As far as the General Public is concerned they will be dealing with a business called Nshomi Trading Company.

However the legal position is that it is Mr. Kagya trading as Nshomi Trading Company. If a supplier or buyer of diamonds wishes to institute proceedings against the business he would do so against “Mr. Kagya trading as Nshomi Trading Company. The liability of Mr. Kagya is personal. If there is a judgment against Mr. Kagya he is personally responsible to satisfy the judgment. In the event of a judgment being entered against him he will have to pay up the damages that are assessed against him personally. If he cannot satisfy the judgment he runs the risk of being declared bankrupt by the judgment creditor. It is important to remember that a sole proprietor is personally responsible for his liabilities. So too, he is the only person entitled to profits. He need not share his profits.

When two or more people join together for a common purpose, usually the purpose of doing business for profit, such an association is called a Partnership. Partners do business under a trade name for instance Mr. Kagya of the Sole Proprietorship can bring in his friend Mr. Lau as a partner and can trade under the name of Nshomi Trading Company. For purposes of the law it really means Kagya and Lau trading in partnership under the name and style of Nshomi Trading Company. The Partnership has an existence of its own to the extent that it can sue and be sued in its own name. However, the consequences of a liability against the partnership are that each of the partners is fully liable to the entire extent of the debt. In law, each partner is the agent for the other. The act of one partner binds the firm and the other partners.

Distinction between Company and Partnership

1. A Partnership firm is sum total of persons who have come together to share the profits of the business carried on by them or any of them. It does not have a separate legal entity. A Company is association of persons who have come together for a specific purpose. The company has a separate legal entity as soon as it is incorporated under law.
 2. Liability of the partners is unlimited. However, the liability of shareholders of a limited company is limited to the extent of unpaid share or to the tune of the unpaid amount guaranteed by the shareholder.
3. Property of the firm belongs to the partners and they are collectively entitled to it. In case of a company, the property belongs to the company and not to its members.
4. A partner cannot transfer his shares in the partnership firm without the consent of all other partners. In case of a company, shares may be transferred without the permission of the other members, in absence of any provision to the contrary in the articles of association of the company.
 5. There must be at least 2 members in order to form a partnership firm. The minimum number of members necessary for a public company is seven and two for a private company.
6. On the death of any partner, the partnership is dissolved unless there is provision to the contrary. On the death of the shareholder, the company' existence does not get terminated.

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The Meaning and Nature of Corporate Personality- (Company law concept)

busines law , company law

Introduction

 Corporate personality is the fundamental principle or doctrine that goes to the root of company law that a company, being a legal person, is entirely distinct from its members who formed it. After being incorporated, a company becomes an independent legal entity vested with a personality separate from that of its shareholders. The personality gives a company an artificial life, perpetual succession, the right to own and dispose property, and limited liability. Thus, a company has full legal personality and is, so far as possible, to be treated analogous to an individual.

This theory is a by-product of the English House of Lords decision in Salomon v. Salomon& Co. Ltd[1] . In that landmark case Aron Solomon, a successful leather merchant, decided to incorporate his business in 1892, with himself, his wife and five children as the only shareholders. The business assets were transferred into the corporate name for the somewhat ambitious value of 39,000 pounds. Each of the other members of the family took one share; Salomon himself took 20,001 shares. A 10,000-pound debenture was created charging the assets of the company. Less than a year later the corporation encountered financial difficulties and, after paying off the debenture holder, the company’s assets were insufficient to pay off the unsecured creditors. These creditors then attempted to fix financial liability on Aron Salomon. Both trial judge and the Court of Appeal held that Mr. Salomon was liable for the company’s debts, on the ground that the company was either an agent, a trustee or a nominee of the true owner. The House of Lords rejected this view on corporations. Lord Halsbury said[2]: “Either the limited company was a legal entity or it was not. If it was, the business belonged to it and not to Mr. Salomon. If it was not, there was no person and no thing to be an agent at all”. Corporate law, therefore, erects an imaginary wall between a company and its shareholders from liability for a company’s actions. Once shareholders have made their promised capital contributions to the company, they have no further financial liability. All these mean that contracts of a company are not contracts of the shareholders, and debts of a company are not debts of its shareholders[3].

 Lifting/Piercing the Cooperate Veil

From juristic point of view a company is a legal person different from its members Salomon v Salomon & Co Ltd. (1897) A.C. 22.The principle may be referred to as the ‘Veil of incorporation”. The courts in general consider themselves bound by this principle. The effect of this principle is that there is a fictional veil (and not a wall) between the company and its members. That is, the company has a corporate personality which is distinct from its members.
The human ingenuity however, started using this veil of corporate personality blatantly as a crack for fraud or improper conduct, thus it became necessary for the courts to break through or lift the corporate veil or crack the shell of corporate personality and look at the persons behind the company who are the real beneficiaries of the corporate fiction. In United States v. Milwaukee Refrigerator Co.[4], the court observed “A corporation will be looked upon as a legal entity as a general rule… but when the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud or defend crime, the law will regard the corporation as an association of persons”.

 In Littlewoods Mail Order Stores Ltd. V. Inland Revenue[5], Denning MR. Observed: “The doctrine laid down in Solomon v. Solomon & Co. Ltd. has to be watched very carefully. It has often been supposed to cast a veil over the personality of a limited company through which the courts cannot see. But that is not true. The courts can and often do draw aside the veil. They can, and often do, pull off the mask. They look to see what really lies behind”.
The power to pierce the corporate veil, though, is to be exercised “reluctantly” and “cautiously” and the burden of establishing a basis for disregard of corporate fiction rests on the party asserting such claim.
The circumstances, which have been considered significant by the courts in actions to disregard the corporate fiction, have been “rarely articulated with any clarity”. This is true because the circumstances necessary vary according to the circumstances of each case and every case where the issue is raised is to be regarded as sui generic (to be decided in accordance with its own underlying facts.) the law.

Various Cases in which corporate veil can be lifted.

The court may ignore the corporate entity where company is used for tax evasion. Tax planning may be legitimate as it is within the framework of the law. Where it is desired to determine for tax purposes the residence of a company the court will lift the veil and find out where its central management is, and that place will determine the residence of the company.

Prevention of fraud or improper conducts

The legal personality of a company may also be disregarded in the interest of justice where the machinery of incorporation has been used for some fraudulent purpose. In Jones v Lipman (1962) All ER 442. L agreed to sell certain land to J. He subsequently changed is mind and to avoid the specific performance of the contract, he sold it to a company which was formed specifically for that purpose. L and a clerk of his solicitors were the only members. J brought action for specific performance against L & and the company. The court looked at the reality of the situation, ignored transfer and ordered that the company should convey the land to J.

Determination of character of a company whether it is enemy.

 A company may assume an enemy character where persons in de facto control of its affairs are residents in an enemy country. In Daimler Co. v Continental Tyre & Rubber Co. Ltd (1916) a company was incorporated in England for the purpose of selling in England tires made in Germany by a German Company which held bulk of shares in the English company. The holders of remaining shares except one, and all the directors were Germans, resident in German. During the First World War, the English company commenced an action for recovery of a trade debt.
Held: The Company was an alien company and the payment of the debt to it would amount to trading with enemy, and therefore the company was not allowed to proceed with the action.

Where the Company is a sham or is formed to avoid legal obligations

 Where the use of an incorporated company is being made to avoid legal obligations the court may disregard the legal personality. Nicole & Sandra partners, sell their business to Benja and undertake not to start a similar business and not to compete with Charles for certain number of years. After some time they form a private company, become the principal shareholders and directors and start a similar business. The court may restrain the company from carrying business. In the case of Gilford Co. Ltd v Horne (1933) Ch. 935 C.A. Horne a former employee of a company was subject to a covenant not to solicit its customers. He formed a company to carry on a business that, if he had done so personally, would have been a breach of the covenant. An injunction was granted against him and the company to restrain from carrying business. The company was described in a judgment as “a device, a stratagem” and a as a mere crack or sham for the purpose of enabling the defendant to commit a breach of his covenant against solicitation.”

Protecting public policy

The courts invariably lift the corporate veil to protect public policy and prevent transactions contrary to public policy. In the case of Connors v. Connors Ltd (1940) 4 All ER 174 it was held that where there is a conflict with public policy, the court will lift the veil of incorporation.

Statutory lifting

Apart from judicial considerations, the exercise may also be carried out statutorily under the provisions of Companies Act e.g. where the number of members is reduced bellow the statutory minimum

[1] [1897] A.C. 22 (Eng., H.L.)
[2] See Salomon v. Salomon., op. cit., at p. 31
[3] See MALLOR J. et al., Business Law and the Regulatory Environment. Concepts and Cases: 10th Edn: Boston: Mc Graw-Hill Companies, Inc., 1998, at p. 826.
[4] (1905) 142 Fed 247
[5] (1969) WLR 1241

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FEATURED CHARACTERISTICS OF THE COMPANY

busines law , company law

INTRODUCTION 

The word 'Company' is an amalgamation of the Latin word 'Com' meaning "with or together" and ‘Pains’ meaning, "bread". Originally, it referred to a group of persons who took their meals together. Section 2 of the Companies Act, 2002 (Cap 212) defines Company as “…a company formed and registered under this Act or an existing company”.
 A company is nothing but a group of persons who have come together or who have contributed money for some common purpose and who have incorporated themselves into a distinct legal entity in the form of a company for that purpose.

 Lindley L.J defines a company as “an association of many persons who contribute money or money’s worth to a common stock, and to employ it in some common trade or business, and who share the profit or loss arising therefrom”[1]
Lord Justice Marshall defines a corporation as “an artificial being, invisible, intangible, existing only in contemplation of the law. Being a mere creation of law, it possesses only properties which the charter of its creation confers upon it either expressly or as incidental to its very existence”
 Under Halsbury’s Laws of England, the term "company" has been defined as a collection of many individuals united into one body under special domination, having perpetual succession under an artificial form and vested by law with the capacity of acting in several respect as an individual, particularly for taking and granting of property, for contracting obligation and for suing and being sued, for enjoying privileges and immunities in common and exercising a variety of political rights, more or less extensive, according to the design of its institution or the powers upon it, either at the time of its creation or at any subsequent period of its existence. Normally, in the world of commerce the word “company” is used to denote an association of people so associated for an economic purpose e.g. business. Please note that companies can be formed for other purposes as well – for example – for charity.

A company is also define to mean a group of persons associated together for the attainment of a common end, social or economic or a voluntary association of persons or individuals formed for some common purpose (Smith v Anderson 1880 Ch. D. 247). A company as an entity has several distinct features which together make it a unique organization.

The following are the defining characteristics of a company:

 Separate Legal Entity:

 On incorporation under the law, a company becomes a separate legal entity as compared to its members. The company is different and distinct from its members in law. It has its own name and its own seal, its assets and liabilities are separate and distinct from those of its members. It is capable of owning property, incurring debt and borrowing money, having a bank account, employing people, entering into contracts and suing and being sued separately. The legal personality or separate entity was recognized in Oakes v Turquant (1867) L.R. 2 H.L. 325, but the importance was firmly established in Salomon v Salomon (1897) A.C 22. In this case, Salomon sold his boots business to a newly formed company for ₤ 30000. His wife, one daughter and four sons took up one share of ₤ 1 each. Salomon took 23000 shares of ₤ 1 each and ₤ 10,000 debentures in the company. The debentures gave Salomon a charge over the assets of the company as the consideration of the transfer of business. Subsequently, when the company was wound up, its assets were found to be worth ₤ 6,000 and its liabilities amounted to ₤ 17,000 of which ₤ 10000 was due to Salomon (secured by debentures) and ₤ 7000 due to unsecured creditors. The unsecured creditors claimed that Salomon and the company were one and the same person and that the company was merely agent for Salomon and hence they should be paid in priority to Salomon. It was held that the company was, in the eyes of law, a separate person independent from Salomon and was not his agent though initially the holder of all shares of the company was also a secured creditor, and was entitled to repayment in priority to unsecured creditors.

Lord Macnaghten observed: “The company is at law a different person altogether from the subscribers to the memorandum, and though it may be that after incorporation the business is precisely the same as it was before, and the same persons are managers, and the same hands receive the profits, the company is not in law the agent of the subscribers or trustee of them. Nor are subscribers liable, in any shape or form except to the extent and in a manner provided by the Act”

 Limited Liability:

The liability of the members of the company is limited to contribution to the assets of the company up to the face value of shares held by them. A member is liable to pay only the uncalled money due on shares held by him when called upon to pay and nothing more, even if liabilities of the company far exceeds its assets. The personal property of a shareholder cannot be attached for the debts of the company if he/she holds fully paid up share. A company may be limited by shares or by guarantee (s. 3(2) of the Companies Act, 2002). In a company limited by shares the liability of members is limited to the unpaid value of shares. In a company limited by guarantee, the liability of a member is limited to such amount, as the members may undertake to contribute to the assets of a company, in the events of its being wound up. The importance of limited liability was expressed in Senkin v Pharmaceutical Society of GB (1921) 1 Ch. 392. Limited liability is the offspring of a proved necessity that, men should be entitled to engage in commercial pursuit without involving the whole of their fortune in that particular pursuit in which they are engaged.

Perpetual Succession:

A company is a Juristic person with perpetual succession. A company does not die or cease to exist unless it is specifically wound up or the task for which it was formed has been completed. Membership of a company may keep on changing from time to time but that does not affect life of the company. Death or insolvency of members does not affect the existence of the company. It is created by the process of the law and can only be put to an end by the process of law. Separate Property: A company is a distinct legal entity. The company’s property is its own. A member cannot claim to be owner of the company's property during the existence of the company. A shareholder doesn’t even have insurable interest in the property of the Company. Macaura v Northern Ins. Co. (1925) AC 619 M was holder of nearly all shares of a timber company. He was also a substantial creditor of the company. He insured the Company’s timber in his own name. The timber was destroyed by fire. It was held that the insurance company was not liable.

 Transferability of Shares:

 S. 74 of the Companies Act states that “the shares or any other interests of any member in a company shall be transferable in a manner provided by the articles of the company.” Shares in a public company are freely transferable, subject to certain conditions, such that no shareholder is permanently or necessarily wedded to a company. When a member transfers his shares to another person, the transferee steps into the shoes of the transferor and acquires all the rights of the transferor in respect of those shares. Section 27 of the Companies Act restricts the right of the members of a private company to transfer shares.

Capacity to sue and being sued:

 A company can sue or be sued in its own name as distinct from its members. It may also inflict or suffer wrongs. It can in fact do or have done to it most of the things which may be done by or to a human being. The company is only able to sue or be sued in its own name when it has been registered. If the company has not acquired legal personality (not fully registered) it cannot institute a suit[2]. In the case of Fort Hall Bakery Supply co. v. Federic Muigai Wangoe (1959) E.A. 474 a suit was instituted by an unregistered firm of over twenty members whose existence as body was not recognized in law. The high Court of Kenya stated at page 475.
“It is not registered as a company under Companies Ordinance or formed in pursuance of some other Ordinances or Act of parliament or letters of patent. It cannot therefore be recognized as having any legal existence.

In the words of Bankes, L.J. in Banque Internationale de Commerce de Petrograd vs. Goankassaow (1923) 2. K.B. 682 at 688 “ The party seeking to maintain the action is in the eye of law no party at all but a mere name only, with no legal existence…A non- existence person cannot sue, and once the court is made aware that the plaintiff is non- existence, and therefore incapable of maintaining the action, it cannot allow the action to proceed

 Separate Management:
 A company is administered and managed by its managerial personnel i.e. the Board of Directors. The shareholders are simply the holders of the shares in the company and need not be necessarily the managers of the company.

[1] Taken from Saleemi N.A & Opiyo, A.G, Company Law Simplified (1997) at p.1
[2] The proper procedure for seeking legal remedy in a court by a body of persons who have no corporate existence, is by way of a representative suit as provided under Order 1 rule 8 of the Civil Procedure Code

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PROCEDURES OF FORMING A COMPANY IN TANZANIA

busines law , company law

Introduction

Any person wishing to incorporate a company in Tanzania may wish to follow the following procedure stipulated herein below.

A.     CHOICE OF TYPE
The first thing to consider in formation of a company is choice of type. The promoters will first have to make up their minds which of the several types of Registered Company they wish to form, since this may make a difference to the number and types of documents required, and will certainly affect their content.
First, they must choose between a limited and an unlimited company. The disadvantage of the latter is that its members will ultimately be personally liable for its debts and for this reason they are likely to be wary of it if the company intends to trade, see section 3 (2) (c) of Cap 212 R.E 2002.
According to section 10 (1) of Cap. 212, a company having an unlimited liability, the articles must state the number of members with which the company proposes to be registered and, if the company has a share capital, the amount of share capital with which the company proposes to be registered.
Where an unlimited company or a company limited by guarantee has increased the number of its members beyond the registered number, it shall, within fourteen (14) days after the increase was resolved on or took place, give to the Registrar notice of the increase, and the Registrar shall record the increase. If default is made in complying with this subsection, the company and every officer of the company who is in default shall be liable to a default fine. See section 10(3) Cap. 212 R.E. 2002.

v  If they decide upon a limited company they must then make up their minds whether it is to be limited by shares or by guarantee. This is to be decided by them by the purpose which the company is to perform. Only if it is to be a non- profit making concern are they likely to form a guarantee company which is especially suited to a body of that type.

A Company limited by Share is a company having the liability of its members limited by the memorandum to the amount, if any, unpaid on the shares re- spectively held by them while a company having the liability of its members limited by the memorandum to such amount as the members may respectively thereby undertake to contribute to the assets of the company in the event of its being wound up a company limited by guarantee, see section 3(1) & (2) of Cap 212.

Overlapping these distinctions, but closely bound up with them, is the further point of whether or not the company is to be limited by share capital. If, as in most probable, the company is to be limited by shares this question does not arise. Likewise if it is to be limited by guarantee. But if the company is unlimited it may or may not have its capital divided by shares. Once more, the decision is dependent on the company’s purpose; if the company is intending to make and distribute profits a share capital will be appropriate.

They will further have to make up their minds whether the company is to be public or private company.  Public and private company fulfil different economic purposes; the former to raise capital from the public to run the corporate enterprise, the latter to confer a separate legal personality on the business of a single trader or a partnership.
Once again, therefore, the choice will in practice be clear-cut and normally it will be to form a private company.
The incorporator may have the ultimate ambition of going public in this regard they must form a public company. The Memorandum must state that it is a public company and special requirements as to its registration will have to be complied with see section 3(3), 4, 15, 114 of Cap. 212 R.E. 2002
As provided under section 114, where a public company having a share capital has issued an offer document inviting the public to subscribe for its shares, the company shall not commence any business or exercise any borrowing powers unless it has complied with the requirements as included from time to time in regulations made by the Minister for the time being re- possible for finance, or the Capital Markets and Securities Authority or such other authority as may be designated for the purpose.
If any public company commences business or exercises borrow-ing powers in contravention of this section, every person who is responsible for the contravention shall, without prejudice to any other liability, be liable to a default fine.

Theoretically therefore, the incorporators will have a choice of five types:
i.                    A public company limited by shares
ii.                  A private company limited by shares
iii.                A private company limited by guarantee and without a share capital
iv.                A private unlimited company having a share capital
v.                  A private unlimited company not having a share capital.
In practice the choice, however is likely to be between (ii) and (iii) and will be determined by them according to whether they want the company to trade for the profit of the members or to perform some charitable or quasi- charitable purpose.



B.     NAME OF A COMPANY
The Second thing, the incorporator must next decide on a suitable name. The Act requires the name to be started in the memorandum of association, on a company seal, on a business letters, negotiatable instruments and order forms and must be affixed outside every office or place of business.
Section 30 of Cap. 212 R.E. 2002, the registrar may, on written application (here application is for name clearance) reserve a name pending registration of a company or a change of name by a company. Any such reservation shall remain in force for a period of thirty days or such longer period not exceeding sixty days, as the registrar may, for special reasons, allow, and during such period no other company shall be entitled to be registered with that name.
NOTE: Currently, BRELA established ONLINE BUSINESS NAMES REGISTRATION SYSTEM including company name clearance and official search. Person wishing to register a company must visit BRELA website and establish OBNRS account. After establish account then provide email address/mobile phone number and your OBRS password to in order to login in into the OBRS system.
The next step is to type the intended name of the company and wait for two hours. You will be notified as to whether you can proceed or not.
Before establishment of Online Business Names Registration System, a person wishing to establish a company was supposed to apply via Form 1 as shown here in below

                                    THE UNITED REPUBLIC OF TANZANIA  
JAMHURI YA MUUNGANO YA TANZANIA
     BUSINESS NAME (REGISTRATION) ACT (Cap.213)
       (SHERIA YA KUANDIKISHA MAJINA YA BIHASHARA (Sura 213)
                                    Statement of Particulars in case of a Corporation
                                                (Fomu Kama Mmiliki ni Shina/ Kamuni)
NOTE (Angalizo) This statement must be signed by a Director or Secretary of the Corporation (Taarifa hii isaiiniwe na Mkurugenzi au Katibu wa Shirika/Kampuni)


1.
Business Name to be registered
(Jina la Bihashara linalopendekezwa)

2.
Nature of Business
 (Biashara utakayokuwa unafanya)

3.
(a) Postal address
    (anwani ya Posta)

(b) Business address
     ( Mahali ilipo biashara)
Number
(Namba)
Street(Mtaa)
District(Wilaya)
Region (Mkoa)



(c) Phone numbers( Namba za simu)



(d) Email (Barua pepe)



4.
Corporation Name
Jina la Kampuni

6.
Situation of the Registered or principal office of the Corporation
(Anwani ya mahali ofisi za Shilika/Kampuni zilipo
Number
(Namba)
Street( Mtaa)
District(Wilaya)
Region( Mkoa)

7.
Other Business of the Corporation (if any)
Shirika/Kampuni linafanya shughuli/kazi gani nyingine?)

8.
Have you ever used this Business name before? (Je jina hili la Biashara limeshaanza kutumkika?)
a.       YES ( state the date that you have started using it)
NDIYO (andika tarehe uliyoanza kulitumia)

b.      NO (write the date that you are applying)
HAPANA( andika tarehe ya kuletwa ombi hili)

9
Application date ( Tarehe ya kuleta ombi hili)

10
Signature, Seal/Stamp of the Corporation
(Saini na Mhuri wa Shirika/Kampuni)


The use of general terms e.g wholesale and retail must be avoided. Particulars sufficient to identify the type of business carried on must be given (Epuka amtumizi ya maneno ya jumla kama vile “Biashara ya jumla’’

Then, the registry clears establish:-
  1. The availability or non availability of the applied name
  2. Desirability of such name.
As provided by section 9 of the Business Names (Registration) Act Cap. 213 Registrar shall refuse to register any firm, individual or corporation carrying on business under a business name–
1.  which contains any word, which in the opinion of the Registrar, is likely to  mislead the public as to nationality, race or religion of the persons by whom the  business is wholly or mainly owned or controlled;
2. which includes any of the words "Imperial", "Royal", "Empire", "Commonwealth", "Government", "Municipal", or any other word, in such a context as, in the opinion of the Registrar, imports or suggests that the business enjoys the patronage of Her Majesty or of any member of the Royal Family or as to import any connection with or recognition by the Government of any part of Her Majesty's dominions or a local authority;
3. which includes the words "building society" or "co-operative" or their equivalent in any other language or any abbreviation thereof;
4. which is identical with or is similar to that under which any firm, individual or corporation is registered under this Act, or under the Companies Act or under the Co-operative Societies Act if in the opinion of the Registrar such  registration would be likely to mislead the public.

Note: Private limited company must contain the word limited at the end of its name. Section 32 of Cap. 212 provide an exemption in relation to a company limited by guarantee. The object of it is to promoting commerce, art, science, education, religion, charity or any other useful or social object, and intends to apply its profits, if any, or other income in promoting its objects, and to prohibit the payment of any dividend to its members.
Section 3 of Cap 212, any two or more persons, associated for any lawful purpose may, by subscribing their names to a memorandum of association and otherwise complying with the requirements of this Act in respect of registration, form an incorporated company, with or without limited liability

C.     The MEMARTS
The next step is to prepare the memorandum and articles. The Companies Act provides that a regards each of the various types of companies, these documents shall be in the form specified by regulation.
The present Regulations contain five Tables( A, B, C, D & E) of which table A, prescribing model articles for a company (whether public or private) limited by shares, is the most important and differs in its effect from the others. Such a company does not have to register articles and if does not, Table A becomes its articles. Even if it does register articles, in so far as these do not exclude or modify Table A, its provision will apply. Section 11(2) of Cap.212 provides
In the case of a company limited by shares and registered after the commencement of this Act, if articles are not registered, or, if articles are registered, in so far as the articles do not exclude or modify the regulations contained in Table A, Table A shall, so far as applicable, constitute the articles of the company in the same manner and to the same extent as if articles in the form of Table A had been duly registered
In other hands, it, and any other type of company (which will have to register articles) may, in them, adopt by reference any provisions of Table A, see section 11(1) of Cap.212 R.E 2002.
In contrast, the model article in Table C (relating to a company limited by Guarantee without a share capital), Table D (relating to a company limited by Guarantee and with a share capital) and Table E (relating to an unlimited company having a share capital) are merely models which cannot be adopted by reference and will not apply for fill lacunae in the registered articles.  Tables C and D also include model forms of memorandum for the types of company to which they relate as does Table B (for a public limited company).
Before preparing the memorandum and articles of association, the draftsmen will need to obtain, from the promoters, information on matters such as the followings:
1.      The nature of the business- this will be required in connection with the objects clauses of the memorandum unless the promoters are content to adopt the general purpose formula in section 7
2.      The amount of nominal capital and the denomination of the shares into which it is to be divided
3.      Any other special requirements which deviate from the normal as exemplified by the appropriate Tables.
How to Adopt Table A
The main question for consideration is the extent to which Table A is to be adopted. The option of not registering any articles, which is permissible when the company is limited by shares, is rarely chosen because most such companies on initial registration will be private ones and the incorporators will wish to include the sort of restrictions on freedom to transfer shares which were a pre- condition for qualifying as a private company.
The restrictions in Table A are limited to giving the directors a right to refuse to register a transfer when 1. The shares are partly paid or 2. The company has lien upon them. See Table A art.22 provides
“The director may refuse to register the transfer of a share which is not fully paid to a person of whom they do not approve and they may refuse to register the transfer of a share on which the company has a lien’’.
When the incorporation is a partnership or family business what will be wanted is an absolute discretion to reject transfers and probably, provisions requiring the shares to be offered to the existing shareholders if a member wishes to sell. A common practice is to register articles which substitute alternative provisions for certain Table A provisions but adopt the rest. This reduces the length of the documents and the printing costs, see section 9 of Cap. 212 R.E 2002.

D.    LODGMENT OF DOCUMENTS

The final step is to lodge certain documents at the companies’ Registry. The First of these documents- the Memorandum and articles- must each have been signed by each subscriber in the presence of at least one attesting witness, See section 5(1) Cap.212 R.E 2002.
 If the company as share capital each subscriber to the memorandum must write opposite his name the number of shares he takes and must not take less than one. On lodging the memorandum and articles of association they must be accompanied by two documents in the forms prescribed i.e. Statement of Particulars of the Directors and Secretary and Situation of Registered office and the Declaration of Compliance. The first of these is required by section 14 of Cap 212 R.E 2002. The relevant form is Form. 14 a.
The Second of the two documents, the Declaration of Compliance, is required by section 14 and consist of a statutory declaration by an advocate of the High Court engaged in the formation of the company, or by a person named in the articles as a director or secretary of the company, of compliance with all or any of the said requirements shall be produced to the registrar, and the registrar may accept such a declaration as sufficient evidence of compliance. The relevant form is Form. 14b
Normally these will be the only documents required and all that will be needed in addition is payment of the registration fees. All payments are payable to the Registrar of Companies against which receipts are issued. Applicants are advised to desist from making payments for which no receipts are issued. Any demands or request by any officer in the Registry for money which is not within the payment schedule stated, should forthwith be reported to phone no. 2180113, 2181344, and 2180141 for necessary action.

Currently the fees are as shown below

SNO
FEE DESCRIPTION
FEE AMOUNT
1
Company whose nominal share capital is:
- More than Tshs. 20,000/= but not more than Tshs. 1,000,000/=
TSHS 95,000 /=
- More than Tshs. 1,000,000/= but not more than Tshs. 5,000,000/=
TSHS 175,000 /=
- More than Tshs. 5,000,000/= but not more than Tshs. 20,000,000/=
TSHS 260,000 /=
- More than Tshs. 20,000,000/= but not more than Tshs. 50,000,000/=
TSHS 290,000 /=
- More than Tshs. 50,000,000/=
TSHS 440,000 /=
2
For registration of a company not having a share capital where the number of members as stated in the Articles of Association:
TSHS 300,000 /=
3
Filling fee for the application, meaning shs. 22,000/= for each document i.e Memorandum and Articles of Association, Forms no. 14a and 14b.
TSHS 66,000 /=
4
Each Stamp duty for each copy of the Memorandum and Articles of Association is charged
TSHS 5,000 /=
5
Stamp duty for Form no. 14b is charged
TSHS 1,200 /=
6
For reservation of a company name
TSHS 50,000 /=
7
For company name change
TSHS 22,000 /=
8
For the receipt and/or registration by Registrar of any document which under the Act is to be delivered to him
TSHS 22,000 /=
9
For the late filing/registration fee to be paid to the Registrar of any document delivered to him (per month or part thereof)
TSHS 2,500 /=
10
For filing of Annual Returns
TSHS 22,000 /=
11
For certification of any document, per page
TSHS 3,000 /=
12
For making search in any file/perusal
TSHS 3,000 /=
13
For obtaining a written search report per file
TSHS 22,000 /=
14
Fees payable by a company to which Part XII of the Act applies
- For the registration of certified copy of a charter, statute or memorandum and articles of the company, or other instrument constituting or defining the constitution of the company
USD 750 /=
- For registration of filling any document required to be delivered to the Registrar under Part XII of the Act/other than the balance sheet
USD 220 /=
- For filling of Balance Sheet
USD 220 /=
- For late filing/registration fee to be paid to the Registrar of any document delivered to him out of time (per month or part thereof)
USD 25 /=
15
For obtaining a copy of Certificate of Incorporation
TSHS 4,000 /=

However, as we have seen, a second declaration may be needed if the company is a guarantee company which wishes to dispense with “Limited”, See section 32(1) & (2) Cap. 212 R.E 2002

Purchase of a Shelf- Company
            If the incorporators have no immediate special requirements regarding the company’s constitution or name, but want their business to be incorporated as rapidly as possible as a private company limited by shares, an alternative to registering a new company is to buy one off-the- shelf from one of the agencies which provide this service. This alternative is increasingly being adopted, somewhat to the horror of traditional company Lawyers.
Its great advantage is spread because all the incorporators have to do is to pay the agency and to take transfers of the subscribers’ shares and custody of the company’s registers. They will, of course, then have to send to the Registrar notices of changes of the directors and secretary (with the required consent) and of the situation of the registered office.
Any other change such as alteration of articles or change of name can be affected at leisure. The main disadvantage is that until they make changes, company’s name is unlikely to bear any relationship to them or to the business being carried on.

Registration and Certificate of Incorporation
If the registrar is satisfied that the requirements for registration are met and that the purpose for which incorporators are associated is lawful he issue a certificate of incorporation signed by him or authenticated under his official seal.
Section 15 of Cap 212 R.E 2002 states that on the registration of the memorandum of a company the Registrar shall certify under his hand that the company is incorporated and, in the case of a limited company, that the company is limited, and, in the case of a public company, that the company is a public company
Section 16 of Cap 212 declares that the certificate is conclusive evidence
a.     that all the requirements of this Act in respect of registration and of matters precedent and incidental thereto have been complied with and
b.      that the association is a company authorised to be registered and duly registered under the Act.
The functions of the Registrar in deciding whether or not to register the company are administrative, rather than judicial, but refusal to register can be challenge by judicial review, although with slight hope of success. However, normally, the registration of a company cannot be challenged because of the conclusive effect of the certificate.
However this immunity is not complete. In R. V. Registrar of Companies, ex p. H.M.’S Attorney- General (1991) BCLC 476, a prostitute had succeeded in incorporating her business under the name of  Lindi St Claire (Personal Service) Ltd” (the Registrar having rejected her first preference of Prostitutes Ltd or Hookers Ltd”  and shown no enthusiasm for Lindi St Claire (French Lessons ) Ltd”) and, with scrupulous frankness, she specified its primary object in the memorandum as “ to carry on the business of prostitution”. The court on judicial review at the instance of the Attorney -General quashed the registration on the ground that the stated business was unlawful as contrary to public policy.


Commencement of Business
From the date of registration mentioned in the certificate of incorporation, the company, if it is a private company, becomes capable forthwith of exercising all the functions of an incorporated company. But when it is registered as a public company this is subject ... to section 114 (additional certificate as the amount of allotted share capital).
The company shall not commence any business or exercise any borrowing powers until the Registrar has issued it with a certificate (commonly known as a Certificate of Commencement or Trading Certificate). If any public company commences business or exercises borrowing powers in contravention of this section, every person who is responsible for the contravention shall, without prejudice to any other liability, be liable to a default fine.
One condition for incorporating these type of companies is the issuance of aoffer document which prior to its registration must be approved by the capital Markets and Securities Authority. A an offer document is in essence an invitation to the general public to subscribe for shares
In the word of section 44 of Cap. 212,  an offer document issued by or on behalf of a company or in relation to an intended company shall be dated, and that date shall, unless the contrary is proved, be taken as the date of publication of the offer document. As to what should be contained in the offer document section 47 (1) of Cap. 212 is clear as every offer document issued by or on behalf of a company, or by or on behalf of any person who is or has been engaged or interested in the formation of the company, must state the matters specified and contain the reports required to be included from time to time in regulations made by the Minister for the time being responsible for finance, or by the Capital Markets and Securities Authority or such other authority as may be designated by that Minister for the purpose.

Contractual Effects of Memorandum and Articles of Association
Section 18 of Cap 212 provides that the memorandum and articles shall, when registered, bind the company and the members thereof to the same extent as if they respectively had been signed and sealed by each member, and contained covenants on the part of each member to observe all the provisions of the memorandum and of the articles
From that provision, the following principles can be determined:
a.       The memorandum and articles of association constitute a contract between the company and each member. But it is a contract with various special characteristics. Section 18 it provides that it is Subject to the provisions of this Act (companies Act). Those provisions include section which permits of alteration of memorandum and articles of association by means of special resolution. Thus a member inter into a contract on terms which are alterable by other party
b.      The contract is enforceable among the members inter se. The principle occasions on which this question is likely to be important arise when the articles confer on a member’s a right of pre-emption or first refusal when another member wishes to sell his shares or mere rarely, impose a duty on the remaining members or the directors to buy the shares of a retiring member.
c.       The section is important in relation to the rights of members to restrain corporate irregularities and to the so called rule in Foss v. Harbottle. (principle of proper plaintiff).

RE- REGISTRATION OF AN EXISTING COMPANY

A company may wish, at some stage, to convert itself into a company of a different type. This, in most cases, it may d*o without the expense of affecting a complete re-organisation of the type referred above and without having to form a brand new company.

1.      Private Company becoming public
Under Cap 212 there are two situations in which a private company can become a public company.
-          By choice
-          By Default

a.      By choice.
Under section 8(b) of Cap 212 a private company can become re-registered as a public company by passing a special resolution that it should be so re-registered and applying to the Registrar in the prescribed form (Form. 29) signed by a director or the secretary, accompanying the application by a number of documents designed to enable the Registrar to satisfy himself that the minimum capital requirements for a public company are complied with.
The special resolution must alter the memorandum of association to state that the company is to be a public company and must make such further alterations as are necessary to comply with the provisions of the Act in relation to public companies (including the change of the suffix to its name from LTD to PLC) and must also make any needed alterations to its articles of association.
Then, it shall send notification to the Registrar in the prescribed form within a period of fourteen (14) days as provided under section 29(1) of Cap 212 R.E 2002.

The documents that must accompany the application are copies of:
     a. The altered memorandum and articles
   b. Balance sheet dated not more than seven months before the application and the auditors’ report   theron,which must be unqualified
   c. A written statement by the auditors that the balance sheet showed that at its date the company’s net assets were not less than the aggregate of its called up share capital and undistributable reserves
d d. If, since the balance sheet date, shares have been allotted otherwise than for cash, the valuation report
    e. Special resolution passed by the general meeting
f.       Board of directors resolution  confirming that the special resolution has been passed
If the Registrar is satisfied that the company may be re- registered as a public company, he issues a new certificate of incorporation which is conclusive evidence that the requirements have been meet.

b.      By Default
A private company is required to:
     1. restricts the right to transfer its shares; and
   2. limits the number of its members to fifty, not including persons who are in the employment of the company and persons who, having been formerly in the employment of the company, were while in that employment, and have continued after the deter commi+-nation of that employment to be, members of the company, and
    3. prohibits any invitation to the public to subscribe for any shares or debentures of the company.

If fails, then, the company shall cease to be entitled to any privilege or exemption conferred on private companies under any of the provisions of the Act, and thereupon the provisions of the Act shall apply to the company as if it were a public company, see section 28 Cap 212 R.E 2002.
It is the High court of Tanzania, on being satisfied that the failure to comply with the conditions was accidental or due to inadvertence or to some other sufficient cause, or that on other grounds it is just and equitable to grant relief, may on the application of the company or any other person interested and on such terms and conditions as seem to the court just and expedient, order that the company be relieved from such consequences as aforesaid.
The application to the court must be by way of chamber summons supported by affidavity of the company.

2.      Public company becoming private
Public company seeking to become a private company alters the company's memorandum including by way of the deletion of a statement that the company is to be a public company.

The procedures are as follows:

a   a.  Convene Board meeting, in which the proposed intention of going to private will be discussed by the Board of Directors. When they agree together they will come up with a resolution
     b.  Issue the notice for summoning the General meeting of the company where the resolution passed by the Board of Directors will be presented and discussed and hence special resolution will be passed
-       Advertise special resolution passed to change the company to private. This is to be published in the news paper which circulates within the areas where the company operates like Tanzania Mainland.
    c. Delisting the process of removing shares in the stock exchange has to be made. The company has to apply for removal of its security/ shares from the stock exchange. This will be governed by rules of that particular stock exchange
   d. Obtain the necessary approval from the Registrar of Companies for registration process; this is done by application where the company has to give reasons for change.

Documents Required
-          Notice of changing the company
-          Resolution passed by the Board of Directors
-          Resolution passed by the General Meeting
-          Certified copies of the extract of the special resolution
-          Copies of advertisement made to the public
-          Affidavit by the directors of the company that the company is no longer listed in the stock exchange
-          Financial Annual return of the three consecutive years

If the Registrar is satisfied that the company may be re- registered as a private company, he issues a new certificate of incorporation which is conclusive evidence that the requirements have been meet.

3.      Unlimited company becoming limited
A company registered as unlimited may register as limited, but the registration of an unlimited company as a limited company shall not affect the rights or liabilities of the company in respect of any debt or obligation incurred, or any contract entered into, by, to, with, or on behalf of the company before the registration. But it is subject to the provisions of the Companies Act.

On registration in pursuance of this section, the Registrar shall close the former registration of the company, and may dispense with the delivery to him of copies of any documents with copies of which he was furnished on the occasion of the original registration of the company, but save as above, the registration shall take place in the same manner and shall have effect as if it were the first registration of the company

The procedures are;
    a.  Passing of  a special resolution
    b.  Making necessary alteration to its memorandum and articles ( a copy of these must be forwarded to the registrar
    c. An application must be made in a prescribed form, signed by a directors or the secretary.


The post has been prepared and submitted by MKAMA KALEBU. MAGOTI

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