UNDERSTANDING

COMPANY LAW

ELIUD KITIME

2018
 PREFACE

Companies are the most common business associations. They play important roles

in the socio-economic development. They generate job opportunities for people

to produce and sell their goods and services to consumers. They form essential

part of the circular flow of any market economy. They buy resources from

households in the resource market and sell to households in the product market.

Henceforth, without companies, the economy would be very ineffective.

Companies when incorporated gains a separate corporate personality from its

members. It is artificial person created by or under law, with a discrete legal

personality, perpetual succession, and a common seal. Despite being a person,

a company is invisible and intangible. Its existence is not affected by the death,

insanity or insolvency of an individual member. Companies as legal persons may

associate and register themselves collectively as other companies.

This book focuses on the nature of the legal vehicles available for the carrying on

of entrepreneurial activities, paying particular attention to the analysis of

companies. It examines the core features of the company such as separate legal

personality, limited liability, centralised management, the allocation of control

rights, and free transferability of shares as well as winding up of companies.

The aim of this book is help readers develop an understanding of essential

company principles and rules, to enable readers to acquire understanding of a

basic legal framework within which the companies are formed, operate and
i
wound up and to help the readers to understand, analyse and resolve company

law issues and disputes as they are encountered by lawyers, regulators and

policymakers, managers, directors and other interested persons.

ii
 LIST OF STATUTES

The Business Laws (Miscellaneous Amendments) Act, Act No. 3 of 2012

The Business Names (Registration) Act, Cap 213 R.E 2002

The Companies Act, Cap 212 R.E. 2002

The Income Tax Act, Cap 332 R.E. 2008

iii
 LIST OF CASES

Ashbury Carriage Co. v Riche (1875), L. R. 7 H. L. 653)

Arkwright v Newbold (1881) 17 Ch. D. 301. 44 L.T. 393

Daimler Co. Ltd v Continental Tyre and Rubber Co. Ltd [1916]2 AC 307

D.H.N. food products Ltd. v Tower Hamlets London Borough Council [1976] 1 WLR

852

Erlanger v New Sombrero Phosphate Co. (1878) 3 App Cas 1218

Farrar v Farrars Ltd [1888] 40 Ch. D 395

Foss v Harbottle (1843) 67 ER 189

Gluckstein v Barnes [1900] AC 240

Guinness v Land Corporation of Ireland (1882) 22 Ch. D 349.

Jones v Lipman [1962] 1 All ER 442

Kelner v Baxter (1866) LR 2 CP 174

Ladywell Mining Co. v Brooks 35 Ch D 400

Ladtwell Mining Co. v Huggons 35 Ch. 400: 56 L.T 677

Lagunace Elitrate Co. v Lagunace Syndicate (1899) 2 Ch. 392.

iv
Lee v Lee’s Air Ltd [1961] AC 12

Lindsay Petroleum Co. v Hurd (1874) 22 W. R. 492

Macaura v Northern Assurance Co. Ltd [1925] AC 619

Merhedo v Perto Alegre Railway Co. (1874) 32 L. T. 57: 23 W. R. 57

Oakbank Oil Co v Crum (882) 8 App Cas 65.

Phonogram Limited v Lane [1982] 1 QB 938, [1982] QB 938

Re F. G. Films Ltd [1953] 1 All ER 615

Re Noel Tedman Holdings Pty Ltd [1967] QD R651

Re William C. Leitch Brs Ltd [1932] 2 Ch. 71

Salomon v Salomon and Co Ltd. [1897] AC 22.

Sharp v Dawes (1971)

Smith Stone v Knight Birmingham Corporation [1939] 4 All ER 116

Twycross v Grant (1877) 2 CPD 469

United States v Milwaukee Refrigerator Co. (1905) 142 F, ed. 247

Whaley Bridge Calico Printing Co v Green (1880)

Yusufu Manji v Edward Masanja and Abdallah Juma [2006] TLR 128
v
 CONTENTS

PREFACE .............................................................................................................................. i

LIST OF STATUTES ................................................................................................................. iii

LIST OF CASES .................................................................................................................... iv

CHAPTER 01 ........................................................................................................................ 1

CONCEPT AND ORIGIN OF COMPANIES

............................................................................................................................................. 1

1.0 Introduction ............................................................................................................. 1

1.1 Objectives ................................................................................................................ 1

1.2 Company ................................................................................................................. 1

1.3 Origins of Companies ............................................................................................. 4

1.4 Companies under Roman Law ............................................................................ 6

1.5 Companies in England .......................................................................................... 8

1.6 Companies in Tanzania ....................................................................................... 10

1.7 Summary ................................................................................................................ 12

1.8 Activity .................................................................................................................... 12

1.9 Review Questions .................................................................................................. 13

1.10 References ......................................................................................................... 13

CHAPTER 02 ...................................................................................................................... 14

CLASSIFICATION OF COMPANIES

........................................................................................................................................... 14
vi
2.0 Introduction ........................................................................................................... 14

2.1 Objectives .............................................................................................................. 14

2.2 Categories of Companies ................................................................................... 15

2.3 Summary ................................................................................................................ 27

2.4 Activity .................................................................................................................... 27

2.5 Review Questions .................................................................................................. 27

2.6 References ............................................................................................................. 28

CHAPTER 03 ...................................................................................................................... 29

PROMOTION OF A COMPANY

........................................................................................................................................... 29

3.0 Introduction ........................................................................................................... 29

3.1 Objectives .............................................................................................................. 29

3.2 Promotion ............................................................................................................... 30

3.3 Promoter ................................................................................................................. 31

3.4 Functions of Promoter .......................................................................................... 33

3.5 Legal Position of Promoter ................................................................................... 35

3.6 Rights of Promoter ................................................................................................. 36

3.7 Duties of Promoter ................................................................................................ 37

3.8 Liability of Promoter .............................................................................................. 39

3.9 Legal Position on Pre-Incorporation Contracts ................................................ 40

3.10 Summary ............................................................................................................. 43

3.11 Activity................................................................................................................. 43

vii
3.12 Review Questions .............................................................................................. 43

3.13 References ......................................................................................................... 44

CHAPTER 04 ...................................................................................................................... 45

INCORPORATION OF A COMPANY

........................................................................................................................................... 45

4.0 Introduction ........................................................................................................... 45

4.1 Objectives .............................................................................................................. 45

4.1 Incorporation ......................................................................................................... 46

4.2 Legal Requirements to Incorporate a Company ............................................ 47

4.3 Procedures of Incorporating a Company ........................................................ 58

4.4 Compliance of Requirements and Procedures ............................................... 66

4.5 Effects of incorporation ....................................................................................... 66

4.6 Summary ................................................................................................................ 68

4.7 Activity .................................................................................................................... 68

4.8 Review Questions .................................................................................................. 68

4.7 References ............................................................................................................. 69

CHAPTER 05 ...................................................................................................................... 70

CORPORATE PERSONALITY

........................................................................................................................................... 70

5.0 Introduction ........................................................................................................... 70

5.1 Objectives .............................................................................................................. 70

viii
5.2 Corporate Personality .......................................................................................... 71

5.3 Elements of Corporate Personality ..................................................................... 71

5.4 Origin of Corporate Personality .......................................................................... 73

5.5 Theories of Corporate Personality ...................................................................... 75

5.6 Corporate Personality in Tanzania ..................................................................... 78

5.7 Corporate Veil or Veil of Incorporation ............................................................. 79

5.8 Lifting or Piercing Corporate Veil ....................................................................... 80

5.9 Theories on Lifting Corporate Veil ...................................................................... 82

5.10 Circumstances to lift corporate veil / veil of incorporation ........................ 82

5.11 Termination of Corporate Personality ............................................................ 88

5.12 Summary ............................................................................................................. 89

5.13 Activity................................................................................................................. 90

5.14 Review Questions .............................................................................................. 90

5.14 References ......................................................................................................... 90

CHAPTER 06 ...................................................................................................................... 91

FINANCING OF A COMPANY

........................................................................................................................................... 91

6.0 Introduction ........................................................................................................... 91

6.1 Objectives .............................................................................................................. 91

6.2 Financing ................................................................................................................ 92

6.3 Modes of Financing a Company ....................................................................... 92

6.3.1 Equity Financing ................................................................................................ 92

ix
 6.3.2 Categories of Equity Financing .................................................................... 93

6.3.3 Debt Financing ............................................................................................... 98

6.3.4 Leasing ........................................................................................................... 103

6.4 Summary .............................................................................................................. 104

6.5 Activity .................................................................................................................. 105

6.6 Review Questions ................................................................................................ 105

6.7 References ........................................................................................................... 105

CHAPTER 07 .................................................................................................................... 107

MANAGEMENT AND ADMINISTRATION OF COMPANY

......................................................................................................................................... 107

7.0 Introduction ......................................................................................................... 107

7.1 Objectives ............................................................................................................ 107

7.2 A Company’s Management ............................................................................ 108

7.3 Regulation of A Company’s Management ................................................... 109

7.4 Who Manages a Company? ............................................................................ 110

7.5 Directors of Company ........................................................................................ 110

7.6 Board of Directors ............................................................................................... 111

7.7 Appointment and Removal of Directors ......................................................... 111

7.8 Powers of Directors ............................................................................................. 113

7.9 Duties of Director ................................................................................................ 114

7.10 Validity of acts of directors ............................................................................ 117

7.11 Register of Members ....................................................................................... 117

x
7.12 Company’s Meetings ..................................................................................... 118

7.13 Company’s Resolutions .................................................................................. 124

7.14 Financial Reporting ......................................................................................... 128

7.15 Taxation of Company ..................................................................................... 129

7.16 Annual Returns ................................................................................................. 130

7.17 Accounts........................................................................................................... 131

7.18 Unfair prejudice and derivative actions ...................................................... 132

7.19 Summary ........................................................................................................... 133

7.20 Activity............................................................................................................... 133

7.21 Review Questions ............................................................................................ 133

7.22 References ....................................................................................................... 134

CHAPTER 08 .................................................................................................................... 135

WINDING UP OF COMPANIES

......................................................................................................................................... 135

8.0 Introduction ......................................................................................................... 135

8.1 Objectives ............................................................................................................ 135

8.2 Winding up ........................................................................................................... 136

8.3 Nature of Winding up ......................................................................................... 137

8.4 Methods of Winding Up of a Company .......................................................... 138

8.5 Reasons for Winding up Companies ............................................................... 139

8.6 Dissolution vis-à-vis Winding up of a Company ............................................. 140

8.7 Insolvency ............................................................................................................ 141

xi
8.8 Implications of Winding Up of a Company .................................................... 143

8.9 Summary .............................................................................................................. 144

8.10 Activity............................................................................................................... 145

8.11 Review Questions ............................................................................................ 145

8.12 References ....................................................................................................... 146

CHAPTER 09 .................................................................................................................... 147

VOLUNTARY WINDING UP OF COMPANIES

......................................................................................................................................... 147

9.0 Introduction ......................................................................................................... 147

9.1 Objectives ............................................................................................................ 147

9.2 Voluntary Winding Up of a Company ............................................................. 148

9.3 Circumstances for Voluntary Winding Up ....................................................... 149

9.4 Commencement of Voluntary Winding Up ................................................... 150

9.5 Powers of the Court in Voluntary Winding Up ................................................ 156

9.6 Effects of Voluntary Winding Up of a Company............................................ 157

9.7 Summary .............................................................................................................. 157

9.8 Activity .................................................................................................................. 158

9.9 Review Questions ................................................................................................ 158

9.10 References ....................................................................................................... 159

CHAPTER 10 .................................................................................................................... 160

xii
COMPULSORY WINDING UP OF COMPANIES

......................................................................................................................................... 160

10.0 Introduction ...................................................................................................... 160

10.1 Objectives......................................................................................................... 160

10.2 Compulsory Winding Up of a Company ..................................................... 161

10.3 Circumstances of Compulsory Winding Up ................................................ 162

10.4 Jurisdiction to wind up Registered Companies in Tanzania ..................... 164

10.5 Commencement of Compulsory Winding up of a Company ................. 164

10.6 Procedures for Compulsory Winding Up of a Company .......................... 165

10.7 Powers of Liquidators ...................................................................................... 170

10.8 Exercise and Control of Liquidators’ Powers ............................................... 172

10.9 Effects of Winding Up Order .......................................................................... 175

10.10 Summary ........................................................................................................... 175

10.11 Activity............................................................................................................... 175

10.12 Review Questions ............................................................................................ 176

10.13 References ....................................................................................................... 177

xiii
 CHAPTER 01

CONCEPT AND ORIGIN OF COMPANIES

1.0 Introduction

The term company is most applied ever since the associations of people began

in production. It is often said as far as business arena is concerned. However, its

meaning has been variably identified depending on its usage. Its origin is yet

certain. This chapter introduces you to the concept of company. It enlightens on

what companies mean and where and how they came into existence.

1.1 Objectives

The main objective of this chapter is to contextualise the concepts related

companies. By the end of this chapter, you should be able to: -

 Explain meaning of the term company; and

 Account for the origin of companies.

1.2 Company

Different authors and jurists have defined the term company differently. Their

definitions differ because of variation of legal systems, philosophy and

1
perspectives. However, the variation may not limit us in understanding the

concept.

The English word company has its origins in the Old French military term

compagnie, meaning body of soldiers, which came from the Late Latin word

companio that means one who eats bread with you. By 1303, the word referred

to trade guilds. Usage of the term company to mean business association was first

recorded in 1553, and the abbreviation co. dates from 1769.1

Company can be defined to association formed to conduct business or other

activities in the name of the association.2 In addition, it refers to an association of

persons formed for the purpose of some business or undertaking carried on in the

name of the association, each member having the right of his shares to any other

assigning person, subject to the regulations of the company.3

From the above definitions, it can be understood that company involves

association which means there must be two or more persons. In addition, the

purpose of association is to do business or undertakings. Moreover, these persons

in an association are doing business or undertakings in the name of associations.

This means the association has its own name and can function on its own.

Furthermore, the doing of business or undertakings is subjected to the regulations

1 Dignam, A and Lowry, J, Company Law, Oxford University Press, 2006

2 Martin, E. A, (ed.), A Dictionary of Law, 5th Edition, Oxford University Press, United Kingdom, 2003,
at page 98
3 Osborn, P. G, Concise Law Dictionary for Students and Practitioners, Sweet and Maxwell

Limited, Great Britain, 1927, at page 67

2
of the company. This implies that company must have its rules and regulations to

govern its functioning and operation.

Nonetheless, the above definitions do not suffice the contemporary

developments in the context of company law. The modern company law

recognises and validates single member limited company. They are companies

formed by an individual person. Hence, defining the term company through the

term association may not apply fairly and squarely on this recent development.

Hence company should be defined to mean structure of conducting business or

undertaking which has separate legal personality from the member that has

formed it.

Therefore, company is artificial person created by or under law, with a discrete

legal personality, perpetual succession, and a common seal.4 It is called an

artificial person because of its very nature that law alone can give birth to a

company and law alone can put it to an end. Despite being a person, a

company is invisible and intangible. Its existence is not affected by the death,

insanity or insolvency of an individual member. Companies as legal persons may

associate and register themselves collectively as other companies.

Section 2 of the Companies Act5 gives meaning of the term company. It provides

that company means a company formed and registered under the Companies

4 Garner, B. A, (ed.), Black's Law Dictionary, Second Pocket Edition, West Inc. 2001
5 The Companies Act, Cap 212 RE 2002
3
Act or existing company. This definition implies that company is the business

structure or organisation which has been formed according to the provisions of

the Companies Act. In addition, it means business structure becomes company

when it is registered under the Companies Act. An existing company means a

company formed and registered under any of the former companies Acts.

Therefore, to become company in Tanzania, the business structure must be

formed and registered under the Companies Act. Hence, business structures

which are formed without complying to the provisions of the Companies Act

cannot be said to be company. Moreover, the business structures which are not

registered under the Companies Act do not amount to companies. Therefore,

formation and registration according to the Companies Act are important criteria

to determine whether the business structure is company in context of Tanzania.

1.3 Origins of Companies

Sole proprietorship and partnership were the most preferable form of the business

wherein the persons use to invest and earn profits out of the business for

themselves. Though these forms of businesses still exist but are not the most

common form of business today as now the taste of the consumers has changed,

technology has advanced manifold, etc., which require funds, huge funds and

because of involvement of few persons in sole proprietorship or partnership this

need of huge investment, production at large scale, etc. was not possible. So to

fulfil these needs company form of business came into existence, as also with the
4
time demand shifted from traditional goods to the capital goods and

technological products, which require huge amount of labour and capital, supply

of which was not the possible for a handful of persons.6

Various forms of association were known to medieval law and as regards some of

them the concept of incorporation was early recognised. At, first however,

incorporation seems to have been used only in connection with ecclesiastical

and public bodies, such as chapters, monasteries and boroughs, which had

corporate personality conferred upon them by a charter from the Crown or were

deemed by prescription to have received such a grant.

In the commercial sphere the principal medieval associations were the guilds of

merchants, organizations which had few resemblances to modern companies

but corresponded roughly to our trade protection associations, with the

ceremonial and mutual fellowship of which we can see relics in the modern

Freemasons and Livery Companies. Many of these guilds in due course obtained

charters from the Crown, mainly because this was the only effective method of

obtaining for their members a monopoly of any particular commodity or branch

of trade. Incorporation as a convenient method of distinguishing the rights and

liabilities of the association from those of its members was hardly needed since

6Singh, R. K, Origin and Evolution of Modern Company Law, National Law University, 2013
http://www.legalserviceindia.com/articles/eocindia.htm. (accessed 28th August 2018)
5
each member traded on his own account subject only to obedience to the

regulations of the guild.

It was not until the second half of the seventeenth century that the differentiation

between unincorporated partnerships and incorporated companies was firmly

established. Many joint stock companies were originally formed as partnerships

by agreement under seal, providing for the division of the undertaking into shares

which were transferable by the original partners with greater or less freedom

according to the terms of the partnership agreement. At this time there was no

limit to the number of partners, but in fact they were generally small in number

and additional capital was raised by leviations or calls on the existing members

rather than by invitations to the public.

1.4 Companies under Roman Law

The Romans did not develop a generalized concept of juristic personality in the

sense of an entity that had rights and duties. They had no terms for a corporation

or a legal person. But they did endow certain aggregations of persons with

particular powers and capacities, and the underlying legal notion hovered

between corporate powers, as understood in modern law, and powers enjoyed

collectively by a group of individuals. The source of such collective powers,

6
however, was always an act of state. There were four types of corporation were

distinguished7: -

(i) Municipia

This was the citizen body, originally composed of the conquered cities and later

of other local communities. It possessed a corporate-ness that was recognized in

such matters as having the power to acquire things and to contract. In imperial

times, they were accorded the power to manumit slaves, take legacies, and

finally--though this became general only in postclassical law--to be instituted as

an heir.

(ii) The Populus Romanus

This means people of Rome, collectively could acquire property, make contracts,

and be appointed heir. Public property included the property of the treasury.

(iii) Collegia

This is numerous private associations with specialized functions, such as craft or

trade guilds, burial societies, and societies dedicated to special religious worship-

-seem to have carried on their affairs and to have held property corporately in

republican times. The emperors, viewing the collegia with some suspicion,

enacted from the beginning that no collegium could be founded without state

7Garnsey, P, the Roman Empire: Economy, Society, and Culture, University of California Press, 1987,
at pages 27-
7
authority and that their rights of manumitting slaves and taking legacies be closely

regulated.

(iv) Charitable funds

Charitable funds became a concern of postclassical law. Property might be

donated or willed normally, but not necessarily, to a church for some charitable

use, and the church would then (or so it appears from the evidence) have the

duty of supervising the fund. Imperial legislation controlled the disposition of such

funds so that they could not be used illegally. In such cases ownership is thought

to have been temporarily vested in the administrators.

1.5 Companies in England

The concept of corporate form was brought in for the first time in United Kingdom

wherein the body corporate could be brought into existence either by a Royal

Charter or by a special Act of Parliament. Both these methods were very

expensive and dilatory. Consequently, to meet the growing commercial needs of

the nation, large unincorporated partnerships came into existence, trading,

however, in corporate form.8

The memberships of each such concern being very large, the management of

business was left to a few trustees resulting into separation of ownership from

8Micklethwait, J and Wooldridge, A, The company: A short history of a revolutionary idea,

Modern Library, 2003, Chapter 3
8
management. Rules of law were not being developed by that time which gave

a chance to fraudulent promoters to exploit the public money. As a result, many

spurious companies were created which were formed only to disappear resulting

in loss to the investing public.

The English parliament, therefore, passed an act known as the Bubbles Act of

1720, which, instead of prohibiting the formation of fraudulent companies, made

the very business of companies illegal. This Act made no attempt to put joint stock

companies on a proper basis so as to promote the interest of the industry and

trade and also to protect the investors. An almost frenetic boom in company

floatation’s, which led to the famous South Sea Bubble, marked the first and

second decades of the eighteenth century.9

Most company promoters were not particularly fussy about whether they

obtained charters (an expensive and dilatory process), and those who felt it

desirable to give their projects this hallmark of respectability found it simpler and

cheaper to acquire charters from moribund companies, which were able to do

a brisk trade therein.

Therefore, companies in England began in 1844 when the Joint Stock Companies

Act was passed. The Act provided for the first time that a company could be

incorporated by registration without obtaining a Royal Charter or sanction by a

9Smith, A, An Inquiry into the Nature and Causes of the Wealth of Nations (1776) Book V, Ch. 1,
para 107
9
special Act of Parliament. The office of the Registrar of Joint Stock Companies

was also created. But the Act denied to the members the facility of limited

liability.10

The English Parliament in 1855 passed the Limited Liability Act providing for limited

liability to the members of a registered company. The act of 1844 was superseded

by a comprehensive Act of 1856, which marked the beginning of a new era in

company law in England. This Act introduced the modern mode of creating

companies by means of memorandum and articles of associations.11

1.6 Companies in Tanzania

Tanzania legal system is the result of colonial domination. That is, Germans and

British colonialism. In order to pursue their interests in Africa, Tanganyika

particularly, colonialists introduced various laws and legal agencies. Nevertheless,

it does not mean that Africans had no their own laws regulating their lives but for

the sake of the existing legal system a reference to the colonial domination is

crucial. That is why when one speaks on business laws a reference to common

law becomes mandatory.

The English Foreign Jurisdiction Act, 1890 allowed the application of English

statutes to the colonial governments. Thus, the Act imposed into Tanzania

10 Berle, A. A, and Means, G. C, The Modern Corporation and Private Property (1932)
11 Ibid
10
(Tanganyika by then) several English pieces of legislation including those

governing companies.

Subsequently, the Tanganyika Order in Council, 1920 empowered the governor

to legislate for the territory and to import the enactment directly either from Britain

or as it has been first applied in India. Considerably, the Indian Companies Act,

No. VII of 1913 was made applicable in Tanganyika governing the formulation

and registration of companies. (The Tanganyika Territory Gazette, Volume XII,

1931, No 3 of 1931 as quoted by Chuwa12 illustrates such trend of development.

In the year 1931, the bill was prepared and published, where a law was passed

as Companies Ordinance, Cap.212 p 1931. This law was in pari material with the

English Companies Act of 1929. Moreover, the passed Act repealed and

replaced the Indian Companies Act of 1913.13

In 1959, another bill was tabled in the parliament where a new law was passed.

It was Cap. 419, repealed, and replaced Cap. 212. However, this law is said to

have remained obsolete as it was not brought into force, where Cap 212

continued to apply. In June 2002, the Companies Act was enacted and

subsequently assented to by the president.

12 Chuwa, E. P, the termination of the Business company in Tanzania: a comparative study of

receivership and winding up procedure, LL.M Dissertation, University of Dar es salaam, Dar es
salaam, 2004.
13 Ibid

11
Thus, Cap 212, is the governing law as matter of companies in Tanzania are

concerned. Like the preceded company laws, the existing Act, provides inter alia

the requirement that an incorporated company should have its constitution.

1.7 Summary

In this chapter you have studied concept and origin of company. You have

grasped idea that there are multiple definitions of company as well as their

weaknesses. Generally, company is artificial person created by or under law, with

a discrete legal personality, perpetual succession, and a common seal.

Company can be traced since Ancient Roman societies. However, modern

concept originated in England 1844 when the Joint Stock Companies Act was

passed. The Act of 1844 provided for the registration of a deed of settlement and

the grant of settlement status in return. Later, the 1854 Act introduced a new

constitutional framework based on two documents; the Memorandum and

Articles of Association. The practice has continued under successive Companies

Act to present day. The Tanzania’s companies Act is product of British colonialism.

It originates from the Companies Ordinance of 1931 which later repealed and

replaced by Indian Companies Act.

1.8 Activity

Explain meaning of the term company in your own words.

12
 1.9 Review Questions

1. What do you understand by the term company?

2. Account for the origin and development of companies

3. Discuss the reasons for establishment of companies.

1.10 References

Berle, A. A, and Means, G. C, The Modern Corporation and Private Property (1932)

Garner, B. A, (ed.), Black's Law Dictionary, Second Pocket Edition, West Inc. 2001

Martin, E. A, (ed.), A Dictionary of Law, 5th Edition, Oxford University Press, United

Kingdom, 2003, at page 98

Micklethwait, J and Wooldridge, A, The company: A short history of a

revolutionary idea, Modern Library, 2003, Chapter 3

Osborn, P. G, Concise Law Dictionary for Students and Practitioners, Sweet and

Maxwell Limited, Great Britain, 1927, at page 67

Smith, A, An Inquiry into the Nature and Causes of the Wealth of Nations (1776)

Book V, Ch. 1, para 107

13
 CHAPTER 02

CLASSIFICATION OF COMPANIES

2.0 Introduction

Companies are classified into various groups and types. The classification bases

on different criteria. In this chapter, you are going to learn different categories of

companies. Also, this chapter enlightens on the criteria applicable in classifying

the companies in various groups.

2.1 Objectives

The general objective of this chapter is equip you with understanding of several

classes of companies and process of their classification. By the end of this

chapter, you should be able to: -

 Identify and describe types of companies;

 Describe the process of classification of companies; and

 Distinguish different types of companies.

14
 2.2 Categories of Companies

A company’s classification depends, among other things, on who owns the

company and the extent to which those people are responsible for the

company’s liabilities. It is to be noted that companies may be classified differently

depending on the criteria you have used to classify them.

(a) Liability

This is financial liability of members or shareholders of the company to contribute

to the company in case of failure to discharge its debts and obligations. It signifies

that shareholders cannot be held liable for the debts of the company other than

the amounts already invested in the company. It ensures the legal protection

available to the shareholders of privately and publicly owned companies. The

company's debts and obligations depends on the nature of the financial liability

of the said company.

According to this criteria, there are two types of companies. These are limited and

unlimited companies.

Limited Company

A limited company is a company in which an individual’s financial liability for the

company is restricted to a fixed sum. This sum is usually the value of their

investment. Hence limited company owners are legally responsible for its debts

15
only to the extent of the amount of capital they invested. It limits the amount of

liability undertaken by the company's shareholders.

The limited company is a legal structure that ensures that the liability of company

members or subscribers is limited to their stake in the company by way of

investments or commitments. The members of limited company agree to

contribute a specified amount to the company’s assets in the event of the

company being wound up.

There are two kinds of limited companies. These are company limited by

guarantees and company limited by shares.

Company limited by guarantee

A company limited by guarantee is a company whose limited liability is

guarantee of members of the company to contribute when the said company is

wound up. It does not have any shares or shareholders but is owned by guarantors

who agree to pay a set amount of money towards company debts.14

A company limited by guarantee is formed by non-profit organisations such as

sports clubs, workers' co-operatives and membership organisations, whose

owners wish to have the benefit of limited financial liability.15 There will generally

14 Mackrael, K, Gowlings Law Firm to Combine with U.K.'s Wragge Lawrence Graham, The Wall
Street Journal, (8 July 2015)
15 The 1st Formations, About Company Limited by Guarantee, published at

https://www.1stformations.co.uk/about-companies/company-limited-by-guarantee/. (accessed
on 28th August 2018)
16
be no profits distributed to the guarantors as they will instead be re-invested to

help promote the non-profit objectives of the company. If any profits are

distributed to the owners, then the company will forfeit its right to apply for a

charitable status.

Company limited by shares

A company limited by shares is the company whereby liability of the shareholders

to creditors of the company is limited to the capital originally invested, i.e. the

nominal value of the shares and any premium paid in return for the issue of the

shares by the company.16

A limited company may be private or public. A private limited company's

disclosure requirements are lighter, but its shares may not be offered to the

general public and therefore cannot be traded on a public stock exchange. This

is the major difference between a private limited company and a public limited

company. Most companies, particularly small companies, are private

An identifiable trait of companies limited by shares is the word “limited”, which is

used in their names to warn creditors the company has limited liability. Basically,

this class is described as a company formed on the principle of having the liability

of its members limited to the price to be paid for those shares. In short, the

16Law Path, Types of Companies: Limited by Shares or Limited by Guarantees, 2017,

https://lawpath.com.au/blog/types-companies-limited-shares-limited-guarantee. (accessed on
28th August 2018)
17
shareholder’s liability is limited by the value of their shares and the amount they

have paid or due to pay. So the individual puts money into the company, and in

return, the company gives him or her a percentage of ownership, which will be in

the form of shares. Normally, an individual share can be priced at any value.17

Unlimited Company

Unlimited company is the one whose members have unlimited liability when

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. Its members or

shareholders have a joint, several and non-limited obligation to meet any

insufficiency in the assets of the company to enable settlement of any

outstanding financial liability in the event of the company's formal liquidation.

They are a fairly rare type of corporation aggregate as each member is jointly

and severally liable for the debts of the company in the event of its winding-up.

(b) Country of Incorporation

This is State’s jurisdiction where the company has been incorporated. It also

means the place where the company does its business. The companies may be

incorporated within the State or outside the State. This variation has different legal

connotations and implications in terms of legal compliances for operation.

17 Law Path, op-cit

18
Many small businesses begin their existence focused solely on doing business

locally. As the businesses grow, owners may expand into neighbouring states or

other states with a high demand for their product or service. Others may decide

to expand internationally or shift their focus from the United States to foreign

countries. According to this criteria of classification, there are two types of

companies. These are: -

Domestic Company

A domestic company is one formed in the state in which it is doing business. It is

incorporated in state or country and does business across state lines. It is a

company that conducts its affairs in its home country.18 It is often taxed differently

than a foreign corporation, and may be required to pay duties or fees on the

importation of its product. It is also called local company.

This implies that the place of incorporation and place of operation (business) is

the same for the domestic company. For example, when a company is

incorporated in Tanzania and conducts its business in Tanzania, it is domestic

company.

18Investopedia, Domestic Corporation, published at

https://www.investopedia.com/terms/d/domestic-corporation.asp. (accessed on 28th August
2018)
19
All local companies need to submit for filing annual returns which is done in

prescribed forms. Company accounts (unless exempted under the law) form part

of the returns.19

Foreign Company

A foreign company is a company that conducts business in a country different

from the one in which it was created. It operates in a state or country which it is

not incorporated or chartered. The term "foreign" just means that the primary

location of the business is outside the state.20

A company that is created in one state but receives authority from another state’s

secretary of state to conduct business in that state is considered a foreign

company in that state. Hence the place of incorporation and place of business

are two different places. For instance, a company incorporated in United

Kingdom when comes to operate in Tanzania, it becomes foreign country in

Tanzania.

All companies incorporated outside Tanzania mainland and they come in the

country as branches of such foreign companies. Even if all subscribers and or

19 BRELA, Companies, published at http://www.brela.go.tz/index.php/companies/about.

(accessed on 28th August 2018)
20 Wright, T. C, What is Domestic Corporation, Chron, published at

https://smallbusiness.chron.com/domestic-corporation-58674.html. (accessed on 28th August

2018)
20
shareholders are nationals of the United Republic of Tanzania, the companies are

regarded as foreign. They are registered under part XII of the Companies Act.21

The Registration procedure of this type of companies includes the submission to

the Registrar of certified copies of Memorandum and Articles of Association;

notice of situation of the registered office in the country of domicile; list of directors

of the company; person resident in the country who are the representatives of

the company; copy of most recent accounts and related reports of the company

and certificate of compliance is issued after the process.22

(c) Control

This deals with control mechanism applied between companies. Sometimes, one

company may control another company. There are companies which are

controlled by another companies. The control exists in terms of the shareholding

and decision making for the companies.

Basing on the control criteria particularly on the shareholding and decision

making between companies, there are two categories of companies. These are

holding and subsidiary companies.

Holding Company

21 Cap 212 RE 2002

22 BRELA, op-cit
21
A holding company is a company that owns other companies' outstanding stock.

It is the company that owns enough voting stock in another company to control

management and operations by influencing or electing its board of directors 23.

A holding company usually does not produce goods or services itself; rather, its

purpose is to own shares of other companies to form a corporate group. It allows

the reduction of risk for the owners. It can allow the ownership and control of a

number of different companies.

It is formed to buy and hold the majority of stock of other companies. It exists for

the sole purpose of controlling another company. It also exists for the purpose of

owning property such as real estate, patents, trademarks, stocks and other assets.

It is also called parent company.

Subsidiary company

A subsidiary company is a company owned and controlled by another

company.24 It is also called daughter company. It is the company whose business

is owned by another company. It is not independently owned, often continue to

operate as individual entities, though major corporate decisions are made by the

holding company. It has little to no financial control over its operations. Even

23 Donna-Marie, C, The Personal Holding Company Trap: Federal Taxation, The CPA Journal. The
New York State Society of CPAs, (1993-08-01).
24 Murray, J, what is Subsidiary Company: Benefits and Disadvantages, The balance Small

Business, https://www.thebalancesmb.com/what-is-a-subsidiary-company-4098839. (accessed

on 28th August 2018)
22
independently acting subsidiaries are ultimately financially controlled by their

holding company.

Subsidiaries are common in some industries, particularly real estate. A company

that owns real estate and has several properties may form an overall holding

company, with each property as a subsidiary. The rationale for doing this is to

protect the assets of the various properties from each other's liabilities.

(d) Subscription / Ownership

This means possession of the shareholding of the company. Ownership of the

shares of the company may be open to the public or restricted to private

members. This means that company ownership may be given for any person in

the public or restricted to certain persons.

According to the ownership criteria, the companies have been classified into two

groups. These are public and private companies.

Public Company

A public company is the company whose ownership is open to the public.25 It can

raise money by inviting the public to purchase their shares. Shares in a public

25Collins Dictionary available at https://www.collinsdictionary.com/dictionary/english/public-

company. (accessed on 28th August 2018)
23
company can be bought and sold on the stock exchange and so can be bought

by the general public.26

Public companies are open ended, in that there is no maximum number of

members, while the minimum number is also two. Any person may subscribe and

buy shares in the company, which may be listed in the stock exchange.27

One condition for incorporating these type of companies is the issuance of an

offer document which prior to its registration must be approved by the capital

Markets and Securities Authority. An offer document is in essence an invitation to

the general public to subscribe for shares.

They need to have very effective articles of association to regulate the

relationships between the members themselves, members and company

directors, dealers and stock brokers (in cases of listed companies) with the stock

exchange.

Private Company

A private company is the company whose shares may not be offered to the

public for sale and which operates under legal requirements less strict than those

26 Tracy, J. D, A Financial Revolution in the Habsburg Netherlands: Renten and Renteniers in the
County of Holland, 1515–1565, University of California Press, (1985), at page 300.
27 The Companies Act, s 3 (3)

24
for a public company. The company's stock is offered, owned and traded or

exchanged privately.28

Private company is normally formed by persons with prior relationship other than

only business relationship e.g. Father and sons and or daughters, friend etc.

Minimum number of membership is two and maximum is fifty. The shares of these

companies are not freely transmissible. The transferability is subject to strict control

and regulations, as such these type of companies may not list in the stock

exchange for purposes of trading in shares.29

These types of companies are supposed to submit for filing annual returns and any

other statutory fillable documents to the Registrar (e.g. Changes of particulars of

directors, change of company names etc.). Filling fees are also payable and

penalty for late filing is also levies.

(e) Membership

This criterion focuses on the number of members that form the company.

Company may be formed by many persons or single person. Hence, this can lead

to two types of companies. These are many shareholders company and single

shareholder company.

Many Shareholder Company

28 Loewen, J, Money Magnet: Attract Investors to Your Business. Canada: John Wiley & Sons, 2008.
29 The Companies Act, s 27
25
This is the company which is formed by more than one member. It is formed by

many members or shareholders. The members may be natural persons or artificial

persons. This company can be public or private company depending its

ownership.

Single Shareholder Company

This is company formed by an individual person30. It is separate legal entity from

the individual persons that form them. It has the same features like other normal

companies. It has limited liability31. It is capable to sue or be sued on its own name.

It can possess and dispose properties. It can enter contracts with persons such as

other companies and competent natural persons.32 It has perpetual succession

unless it is wound up.

Section 26A (1) of the Business Laws (Miscellaneous Amendments) Act33 defines

the term single shareholder company as the limited liability company formed by

one shareholder only. This meaning denotes that single shareholder company has

to be a company with limited liability. It implies that it is not possible to form

unlimited liability single shareholder company

30 The Companies Act, s 3(1) as amended by Business Laws (Miscellaneous Amendments) Act, s
18
31 Business Laws (Miscellaneous Amendments) Act, s 26A (1)
32 Ashbury Carriage Co. v Riche ((1875), L. R. 7 H. L. 653), the court was of the view that a

company incorporated under the Companies Acts can only make such contracts as are or by
necessary implication authorised by expressly the memorandum, and the shareholders cannot
by ratification make any other contract valid.
33 Act No. 3 of 2012

26
 2.3 Summary

In this chapter, you have learnt that there many types of companies. These types

depend on the criteria applied in the said classification. There are various criteria

to classify the companies. These are ownership, control, liability and place of

incorporation and business as well as membership. Basing on these criteria, there

are public and private companies; holding and subsidiary companies; limited

and unlimited companies; many shareholder and single shareholder companies

and foreign and local companies. These types have different legal implications.

Hence the laws of the particular state must be considered to identify the

requirements.

2.4 Activity

Mention and describe categories of companies.

2.5 Review Questions

1. Distinguish the following terms

a. Public and Private Companies

b. Holding and Subsidiary Companies

c. Limited and Unlimited Companies

d. Companies limited by shares and Companies limited by guarantees

27
 e. Local and Foreign Companies

2. What are advantages and disadvantages of private companies?

3. Discuss the essence of single shareholder companies.

2.6 References

Donna-Marie, C, The Personal Holding Company Trap: Federal Taxation, The CPA

Journal. The New York State Society of CPAs, (1993-08-01).

Investopedia, Domestic Corporation, published at

https://www.investopedia.com/terms/d/domestic-corporation.asp. (accessed

on 28th August 2018)

Law Path, Types of Companies: Limited by Shares or Limited by Guarantees, 2017,

https://lawpath.com.au/blog/types-companies-limited-shares-limited-

guarantee. (accessed on 28th August 2018)

Tracy, J. D, A Financial Revolution in the Habsburg Netherlands: Renten and

Renteniers in the County of Holland, 1515–1565, University of California Press,

(1985), at page 300.

Wright, T. C, What is Domestic Corporation, Chron, published at

https://smallbusiness.chron.com/domestic-corporation-58674.html. (accessed on

28th August 2018)

28
 CHAPTER 03

PROMOTION OF A COMPANY

3.0 Introduction

Before a company is formed, there is an idea of business and nature of business

structure to run the said business. It involves dreaming about business in a

company and making the idea in a concrete form. The process of making idea

of company into reality is called promotion. It is the first stage of formation of a

company. This chapter introduces you to this process and its undertaking towards

the journey of establishing the company. It familiarises you with the practical steps

towards formation of the company.

3.1 Objectives

The general aim of this chapter is to give out what it takes to form a company. It

involves preliminaries towards formation of the company. By the end of this

chapter, you should be able to: -

 Explain what promotion means as far as company law is concerned;

 Describe the initial steps to form the company;

 Discuss the rights and duties of the promoters of the company; and
29
  Analyse the legal status of the transactions conducted during promotion

stage.

3.2 Promotion

The term promotion has different meaning depending on the context it is

applicable. Our focus in company is to understand what promotion denotes. The

formation of a public company is a long and arduous process. First, the company

is floated by its promoters, and the process of gathering financial backing begins.

The promotion of a company is the very first step in this long process.34

Promotion may be defined as the discovery of business opportunities and the

subsequent organisation of funds, property and managerial ability into a business

concern for the purpose of making profits therefrom.

In other words, promotion of a company refers to the entire process by which a

company is brought into existence. It starts with the conceptualisation of the birth

a company and determination of the purpose for which it is to be formed.

Promotion of a company commences when someone discovers an idea

regarding some business which can be profitably undertaken by a company and

includes preliminary and detailed investigation of the feasibility of the idea,

assembling of business elements and making provision of the funds necessary to

34TOPPR, Promotion of a company, https://www.toppr.com/guides/business-studies/formation-

of-a-company/promotion-of-a-company/. (accessed 30th August 2018)
30
launch the enterprise as a going concern. It ends not when the company is

registered but when the company expects no obligations from promoter qua-

promoter.35

3.3 Promoter

As per wordings of Bowen, L J. the term promoter is a term not of law but of busi-

ness, usefully summing up in a single word a number of business operations familiar

to the commercial world by which a company is generally brought into

existence.36

Promoter is any person who assumes primary responsibility for promotion of

company. In other words, promoter is the person who conceives the company

and invests the initial funds.

Justice C. Cockburn in the case of Twycross v Grant37 described a promoter as

one who undertakes to form a company with reference to a given project and

to set it going, and who takes the necessary steps to accomplish that purpose.

Section 50 (7)38 defines the term promotes as a party to the preparation of the

prospectus, or of the portion thereof containing the untrue statement, but does

35 Ladtwell Mining Co. v Huggons 35 Ch. 400: 56 L.T 677

36 Whaley Bridge Calico Printing Co v Green (1880)
37 (1877) 2 CPD 469
38 The Companies Act, Cap 212 RE 2002

31
not include any person by reason of his acting in a professional capacity for

persons engaged in procuring the formation of the company.

A promoter may be an individual, a firm, an association of persons or even a

company. Whether a person is or is not a promoter depends upon the facts in

each particular case. Only one who has a desire that a company be formed and

is prepared to take some steps to implement it is a promoter.

The promoters enter into preliminary contracts with vendors and make

arrangements for the preparation, advertisement and the circulation of

prospectus and placement of capital.

The promoter is usually an industrial expert39 who, with the help of a big team of

experts, does all the preliminary work necessary before a company can be

brought into existence. He selects and settles with persons to become signatories

to the memorandum and the first directors; instructs and directs the solicitors to

prepare the memorandum, the articles and other documents necessary to be

filed with the Registrar of Companies; finds funds for the registration expenses and

prepares the climate to secure the initial capital for the company. 40

39 The expression "expert" includes engineer, valuer, accountant, and any other person whose
profession gives authority to a statement made by him.
40 What do you mean by promotion of company? Published at

http://www.publishyourarticles.net/knowledge-hub/law/what-do-you-mean-by-promotion-of-
company/4302/. (accessed 30th August 2018)
32
Nevertheless, a person who merely acts in his professional capacity on behalf of

the promoter for drawing up the agreement or other documents or prepares the

figures on behalf of the promoter and who is paid by the promoter is not a

promoter.

3.4 Functions of Promoter

Promoters perform several activities to get a company registered and make it

commence a business. Generally, promoters do have the following functions as

far as promotion of a company is concerned: -

(i) Identification of Business Opportunity

The promoter first identifies a potential business opportunity. This opportunity may

be regarding the production of a new product or service or making a product

available through a different channel than before or production of an old

product with new updated features or any other such opportunity having an

investment potential.

(ii) Feasibility Studies

The promoter after having conceived a business opportunity analyses the

opportunity to see whether it is feasible, technically as well as economically. All

identified business opportunities cannot be converted into real projects.

(iii) Name Approval

33
Once the promoters have decided to launch a company next step is to select a

name for the company and get it registered with the registrar of companies of

the state in which the registered office of the company is to be situated. An

application with three names, in the order of their priority, is filed with the registrar

to get the name approved.

(iv) Fixing up Signatories to the Memorandum of Association

The promoters decide upon the members who will be signing the Memorandum

of Association of the proposed company. Usually the signatories of the

memorandum are the first Directors of the Company. However, the written

consent of the persons signing the memorandum is required to act as Directors

and to take up the qualification shares in the company.

(v) Appointment of Professionals

Promoters are also required to appoint certain professionals. These professionals

help them in the preparation of necessary documents that are required to be

filed with the Registrar of Companies such as mercantile bankers, auditors,

lawyers, etc.

(vi) Preparation of Necessary Documents

The promoters are required to prepare necessary legal documents that have to

be submitted to the Registrar of the Companies for getting the company

34
registered. These documents are return of allotment, Memorandum of

Association, Articles of Association, consent of Directors and statutory

declaration.

3.5 Legal Position of Promoter

A promoter is neither a trustee nor an agent of the company which he promotes

because there is no trust or principal in existence at the time of his efforts.

On the other hand, the promoters have a personal liability for all the contracts

which are entered by them for the company before its incorporation 41 until the

same is not ratified by the company later on.

In addition, promoters have a fiduciary position42 with the company and thus they

should make a profit only if it is disclosed and should not make any secret profits.

Also, the promoters are not legally entitled to claim the expenses incurred in the

promotion of a company.

Consequently, a promoter must make full disclosure of the relevant facts, includ-

ing any profit made. He must not make any secret profits out of the transactions

he makes on behalf of the company. It is to be observed that it is not the profit

made by the promoter which the law forbids, but the non-disclosure of it.

41 The companies Act, s 38(1)(d)

42 A position full of trust and confidence
35
In the case of Gluckstein v Barnes43 the court was of the view that the promoter

of the company was under a duty to make explicit declarations of the profit they

make from resale of the property.

Also, in the case of Erlanger v New Sombrero Phosphate Co.44 it was held that the

contract should be void because the prospectus that offered the company’s

shares to the public did not disclose the promoter’s profit.

However, the company may choose to reimburse the pre-incorporation

expenses. The company may also allot shares or debentures or give an option to

purchase the securities at a future date to the promoters.

3.6 Rights of Promoter

The promoter deals with many issues such as detailed investigations to find out

the weaknesses and strong points of the idea, to determine the amount of capital

required and to estimate the operating expenses and probable income. Hence,

he has some rights in relation to the work he or she does:

(i) Right of indemnity

Where more than one-person act as the promoters of the company, one

promoter can claim against another promoter for the compensation and

43 [1900] AC 240
44 (1878) 3 App Cas 1218
36
damages paid by him. Promoters are severally and jointly liable for any untrue

statement given in the prospectus and for the secret profits.

(ii) Right to receive the legitimate preliminary expenses

A promoter is entitled to receive the legitimate preliminary expenses which he has

incurred in the process of formation of the company such as cost of

advertisement, fee of solicitor and surveyors. The right to receive the preliminary

expenses is not a contractual right. It depends upon the discretion of the directors

of the company. The claim for expenses should be supported by vouchers.45

(iii) Right to receive the remuneration

A promoter has no right against the company for his remuneration unless there is

a contract to that effect. In some cases, articles of the company provide for the

directors paying a specified amount to promoters for their services but this does

not give the promoters any contractual right to sue the company. This is simply an

authority vested in the directors of the company.46

3.7 Duties of Promoter

Since promoter has a fiduciary position47 with the company, he or she has various

duties to discharge. The duties of promoters are as follows:

45 Arkwright v. Newbold (1881) 17 ch. D. 301. 44 L.T. 393

46 Merhedo v. Perto Alegre Railway Co. (1874) 32 L. T. 57: 23 W. R. 57.
47 a position full of trust and confidence

37
 (i) To disclose the secret profit

The promoter should not make any secret profit. If he has made any secret profit,

it is his duty to disclose all the money secretly obtained by way of profit. He is

empowered to deduct the reasonable expenses incurred by him.48

(ii) To disclose all the material facts

The promoter should disclose all the material facts. If a promoter contracts to sell

the company a property without making a full disclosure, and the property was

acquired by him at a time when he stood in a fiduciary position towards the

company, the company may either repudiate the sale or affirm the contract and

recover the profit made out of it by the promoters.49

(iii) The promoter must make good to the company what he has obtained

as a trustee

A promoter stands in fiduciary position towards the company. It is the duty of the

promoter to make good to the company what he has obtained as trustee and

not what he may get at any time.

(iv) Duty to disclose private arrangements

48 Foss v Harbottle (1843) ER 189

49 Lagunace Elitrate Co. v Lagunace Syndicate (1899) 2 Ch. 392.
38
It is the duty of the promoter to disclose all the private arrangement resulting him

profit by the promotion of the company.50

(v) Duty of promoter against the future allottees

When it is said the promoters stand in a fiduciary position towards the company

then it does not mean that they stand in such relation only to the company or to

the signatories of memorandums of company and they will also stand in this

relation to the future allottees of the shares.

3.8 Liability of Promoter

There different forms of liabilities of promoter due to the function of promotion of

a company. These are: -

First, the promoter is liable to account to the company for all secret profits made

by him without full disclosure to the company. The company may adopt any one

of the following two courses if the promoter fails to disclose the profit.

These are either the company can sue the promoter for an amount of profit and

recover the same with interest or the company can rescind the contract and can

recover the money paid.

50 Lindsay Petroleum Co. v Hurd (1874) 22 W. R. 492

39
Second, the promoter liable to pay compensation to every person who subscribes

for any share or debentures on the faith of the prospectus for any loss or damage

sustained by reason of any untrue statement therein.51

Third, the promoter is personally liable for all contracts made by him on behalf of

the company until the contracts have been discharged or the company takes

over the liability of the promoter.52

Therefore, it should be noted that the death of promoter does not relieve him from

liabilities. Hence, liabilities survive his death. Moreover, the promoters are liable for

only those acts which are purported to have been done for the company which

they intend to float. Their liability commences only after they have started

functioning as promoters and not for earlier acts. This principle has been laid down

in the English case of Ladywell Mining Co. v Brooks.53

3.9 Legal Position on Pre-Incorporation Contracts

Pre-Incorporation contracts are those contracts which are made by the

promoters with different parties on behalf of the company yet to be incorporated.

Such contracts are generally entered into by promoters to acquire some property

or right for and on behalf of the company to be formed.

51 The Companies Act, s 50 (1) (d)

52 Legal Information Institute, Promoter, Cornell Law School,
https://www.law.cornell.edu/wex/promoter. (accessed on 30th August 2018)
53 35 Ch D 400

40
Nature of pre-incorporation contracts is slightly different to ordinary contracts.

Nature of such contract is bilateral, be it has the features of tripartite contract. In

this type of contract, the promoter furnishes the contract with interested person;

and it would be bilateral contract between them. But the remarkable part of this

contract is that, this contract helps the prospective company, who is not a party

to the contract.

Promoters are generally held personally liable for pre-incorporation contract. This

was the position in the case of Kelner v Baxter54 where the court held that the

promoters are personally liable for the pre-incorporation contract because they

are the consenting party to the contract.

Moreover, in the case of Phonogram Limited v Lane55, Lord Denning settled the

position, he found that if an unformed company enters into the contact, then it

cannot bind the company, but the legal effect of contract does not entirely lack.

And even in that situation the promoters are personally liable for the pre-

incorporation contract.

On the other hand, the pre-incorporation contracts are not legally binding on the

company because the company had no existence while two consenting parties

54 (1866) LR 2 CP 174
55 [1982] 1 QB 938, [1982] QB 938
41
are necessary to a contract whereas the company is non-entity before

incorporation.

Section 40 (1)56 provides that a contract which purports to be made by or on

behalf of a company at a time when the company has not been formed has

effect, subject to any agreement to the contrary, as one made with the person

purporting to act for the company or as agent for it, and he is personally liable on

the contract accordingly.

Under English Common Law, the ratification or adoption, after the incorporation,

did not release the promoter from liability of pre-incorporation contract.57

Whereas in American Court recognize that if the after the incorporation company

can ratify or adopt the contract, and this would bound the company and not the

promoter.

Nonetheless, if the company adopts the agreement in the pre-incorporation

contracts that the promoter’s liability shall cease and if the company does not

adopt the agreement within a certain time either party may rescind the contract.

In such a case promoter’s liability would cease after the lapse of fixed time.

56The Companies Act, Cap 212 RE 2002

57Fox, D. W., Pre-Incorporation Contracts; Delimiting the Operation of Section 36(4) and Section
36 C (1), Company Lawyer, Comp. Law. 1991, 12(6), 113-114
42
 3.10 Summary

In this chapter, you have equipped with understanding that the formation of a

company is a lengthy process. It involves several stages. The first stage in the

process of formation is the promotion. At this stage the idea of carrying on a

business is conceived by a person or by a group of persons called promoters. For

incorporating a company various formalities are required to be carried out. The

promoters perform these functions and bring the company into existence. In

addition, you came into aware that promoters not only conceive a business

opportunity but also analyse its prospects and bring together the men, materials,

machinery, managerial abilities and financial resources that are necessary for the

formation and existence of the company. Moreover, the promoters have rights

and duties. They are personally liable for pre-incorporation contract.

3.11 Activity

Promotion of a company is very important initial stage towards formation of a

company. Discuss the relevance of this stage as far as formation of the company.

3.12 Review Questions

1. Who is promoter? Discuss the significance of promoter in the formation of a

company.

43
 2. With aid of decided cases, describe the rights and duties of promoter in the

formation of a company.

3. Discuss with relevant authorities, whether company is bound legally by the

pre-incorporation contracts.

4. Make clear and reasoned analysis of the liabilities of the promoter in the

formation of a company.

3.13 References

Fox, D. W., Pre-Incorporation Contracts; Delimiting the Operation of Section 36(4)

and Section 36 C (1), Company Lawyer, Comp. Law. 1991, 12(6), 113-114

TOPPR, Promotion of a company, https://www.toppr.com/guides/business-

studies/formation-of-a-company/promotion-of-a-company/. (accessed 30th

August 2018)

What do you mean by promotion of company? Published at

http://www.publishyourarticles.net/knowledge-hub/law/what-do-you-mean-by-

promotion-of-company/4302/. (accessed 30th August 2018)

Legal Information Institute, Promoter, Cornell Law School,

https://www.law.cornell.edu/wex/promoter. (accessed on 30th August 2018)

44
 CHAPTER 04

INCORPORATION OF A COMPANY

4.0 Introduction

Turning your business into a company formally is a legal process. This process

governed by laws of the place where person want to form a company. When a

company is incorporated, it becomes its own legal business structure set apart

from the individuals who founded the business. This chapter gives person an

outlook on the whole process of incorporation of company. It highlights the legal

requirements for the company to be incorporated. It shades a light of knowledge

on the procedures to be taken to incorporate the company. It imparts

understanding of the responsible authorities in the incorporation of a company.

4.1 Objectives

The major aim of this chapter is to important knowledge and understanding

applicable in the process of incorporating a company. By the end of this chapter,

person should be able to: -

 Explain the concept of incorporation, its modes and its necessity as far as

company law is concerned;

45
  Point out and illustrate the legal requirements for the company to be

incorporated;

 Describe the procedures to be undertaken for incorporating the company;

and

 Identify and assess the roles and effectiveness of the responsible authority

for the incorporation of a company.

4.1 Incorporation

A company comes into existence is generally by a process referred to as

incorporation. Once a company has been legally incorporated, it becomes a

distinct entity from those who invest their capital and labour to run the company.

Incorporation is the legal process used to form a company. It is the process of

legally declaring a corporate entity as separate from its owners. It is the formation

of a legal body, with the quality of perpetual existence and succession, unless

limited by the Act of incorporation. Hence, incorporation is the formation of an

association that has corporate personality, i.e. a personality distinct from those of

its members.58

58 Martin, E (ed.), A Dictionary of Law, Oxford University Press, United Kingdom, 2003, at page 246
46
 4.2 Legal Requirements to Incorporate a Company

There are many requirements established by the law which guide the whole

process of incorporating business in Tanzania. Person are going to learn these

requirements.

(i) Company Name

A company cannot be incorporated unless it has unique name from existing

companies’ names. A company’s name should not be the same as, or “too like”,

an existing registered company. It should not be identical or similar to an existing

trade mark. It should not suggest a connection with a government or public

authority. Its use should not constitute a criminal offence nor should it be offensive

and generally. It should not contain any sensitive word or expression without

certain conditions being satisfied.

Hence, a preliminary name availability search is advisable, prior to the submission

of the memorandum and articles of associations. In case of online incorporation,

the state will have final say with regards to the name chosen for the company

and that the name shouldn't deceive or mislead the consumers.

It is allowed to change company’s name. The company may change the

situation of its Registered office of change therein from time to time. This can be

done by giving notice in the prescribed form to the Registrar. The notice of

change shall be given within fourteen days after the date of the change. The
47
Registrar shall record the same after receiving such notice of change of

company’s name.59

(ii) Memorandum of Association (MOA)

Memorandum of association is a legal document prepared in the formation and

registration process of a limited liability company to define its relationship with

shareholders. It confirms the subscribers’ intention to form a limited company and

to become members on incorporation. In a company limited by shares the

memorandum of association includes the subscribers’ agreement to be allotted,

at least, one share.

MOA is filed with the registrar of companies at the time of incorporation of the

company.60 It is accessible to the public and describes the company’s name,

physical address of registered office, names of shareholders and the distribution

of shares. It is mandatory for every company that wants to get registered as a

private/public limited to prepare the memorandum of association.

It is the document that regulates the company’s external affairs. It complements

the articles of association which cover the company's internal constitution. It

59The Companies Act, s 111(2)

60Business Jargons, Memorandum of Association, published at
https://businessjargons.com/memorandum-of-association.html. (accessed on 5th September
2018)
48
contains the fundamental conditions under which the company is allowed to

operate. It also shows the company's initial capital.

The memorandum of association is more fundamental both because of its

content and because, if conflict arises between the terms of the memorandum

and the articles, the memorandum takes precedence.61 Moreover, the articles of

association cannot modify any of the contents of the memorandum.62

There several contents which should be included when drafting the

memorandum of association. The major contents of memorandum of association

are name clause, registered officer clause, object clause, liability clause, capital

clause, association clause/ membership clause.

The name clause requires to state the legal and recognized name of the

company. It is allowed to register a company name only if it does not bear any

similarities with the name of an existing company. A company name must end

with the word “limited” if it is limited company.

The registered office clause requires to show the physical location of the

registered office of the company. It is required to keep all the company registers

in this office in addition to using the office in handling all the outgoing and

61 Welton v Saffery [1897] AC 299.

62 Guinness v Land Corporation of Ireland (1882) 22 Ch D 349.
49
incoming communication correspondence. It must be established a registered

office prior to commencing business activities.

The objective clause requires to summarize the main objectives for establishing

the company with reference to the requirements for shareholding and use of

financial resources. It is needed to state ancillary objectives; that is, those

objectives that are required to facilitate the achievement of the main objectives.

The objectives should be free of any provisions or declarations that contravene

laws or public good.

The liability clause requires to state the extent to which shareholders of the

company are liable to the debt obligations of the company in the event of the

company dissolving. It should show that shareholders are liable only their

shareholding and/or to their commitment to contribute to the dissolution costs

upon liquidation of a company limited by guarantee.

The capital clause requires to state the company’s authorized share capital, the

different categories of shares and the nominal value (the minimum value per

share) of the shares. It is also required to list the company’s assets under this

clause.

50
The association clause confirms that shareholders bound by the MOA are willingly

associating and forming a company. It is required that a person must conduct

the signing in the presence of witness who must also append his signature.63

Therefore, MOA is required to be published and presented to the shareholders,

creditors and others associated with the company so that everybody knows the

lines on which a company shall operate.64

(iii) Articles of Association (AOA)

Every company must have articles of association, which are its internal rules and

are legally binding on the company and all its members. The articles of

association should allow the company’s business to run smoothly and efficiently.

Members have complete freedom to choose the rules to be included in the

articles of association, although most companies adopt model articles of

association.

Articles of association is the legal document which is comprised of rules and

regulations that govern the company’s internal affairs.65 The articles of association

are concerned with the internal management of the company and aims at

carrying out the objectives as mentioned in the memorandum. They define the

company’s purpose and lay out the guidelines of how the task is to be carried out

63 The Companies Act, s 3(1)

64 Business Jargons, op-cit
65 Ibid

51
within the organization. The articles of association cover the information related

to the board of directors, general meetings, voting rights, board proceedings, etc.

The articles of association are the contracts between the shareholders and the

organization and among the shareholder themselves. This document often

defines the manner in which the shares are to be issued, dividend to be paid, the

financial records to be audited and the power to be given to the shareholders

with the voting rights.66

The articles of association can be considered as the user manual for the

organization that comprises of the methodology that can be used to accomplish

the company’s day to day operations. This document is a binding on the

shareholders and the organization and has nothing to do with the outsiders. Thus,

the company is not accountable for any claims made by any external party.

The articles of association is comprised of following provisions share capital, call

of share, forfeiture of share, conversion of share into stock, transfer of shares, share

warrant, surrender of shares; directors, their qualifications, appointment,

remuneration, powers, and proceedings of the board of directors meetings;

voting rights of shareholders, by poll or proxies and proceeding of shareholders

66https://www.insolvencydirect.bis.gov.uk/TechnicalManual/Ch73-
84/Chapter%2075/Part%204/Part%204.htm. (accessed on 5th September 2018)
52
general meetings and dividends and reserves, accounts and audits, borrowing

powers and winding up.

An issue which has caused a considerable amount of litigation and much

discussion among commentators is the extent to which the terms of the

company’s constitution can be enforced both by the company and its members.

However, clear and strong authority for the contractual effect of the articles

comes from the House of Lords in Oakbank Oil Co v Crum67, where Lord Selborne

LC declared:

Each party must be taken to have made himself acquainted with the terms of

the written contract contained in the articles of association ... He must also in

law be taken ... to have understood the terms of the contract according to

their proper meaning; and that being so he must take the consequences

whatever they may be, of the contract which he has made.

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.68

(iv) Registered Office

67 (1882) 8 App Cas 65.

68 The Companies Act, s 18
53
Every company must have a registered office, which must be a real address (i.e.

not a post office box number), where the company is able to accept the service

of communications and notices.

The registered office does not have to be the trading address but may be the

company’s accountants or solicitors’ office. Memorandum of association requires

the address and the country the registered office is situated in to be given. A

company can change its registered office by giving notice to the registrar of

companies.

A company shall, at all times have a registered office to office of company which

all communications and notices may be addressed.69 Failure to do so attracts

punishment. If default is made in complying with having registered office, the

company and every officer of the company who is in default shall be liable to a

default fine.70

(v) Company Directors

A private company requires at least one director, who must be a natural person.71

The directors of a company have all the powers necessary for managing, and for

69 The Companies Act, s 110(1)

70 Ibid, s 110(2)
71 Ibid, s 186

54
directing and supervising the management of, the business and affairs of a

company.72

A public company must have at least two directors, one of whom must be a

natural person.73 A company may set a higher limit for the number of directors in

its articles of association.

Whilst it is up to the members to appoint the people they believe will run the

company successfully on their behalf, there are a number of restrictions as to who

may act as a director.74

To be appointed a director, a person must not be disqualified from acting as a

director unless they have obtained the leave of court. A person must not be

appointed if they are an undischarged bankrupt, unless they have the leave of

court. A person must not be appointed if they are subject to a bankruptcy

restriction order, a bankruptcy restrictions undertaking or an interim bankruptcy

restriction order unless they have the leave of court. 75 A person under 21 years of

age may not be appointed a company director unless the appointment takes

effect once they have attained that age.76

(vi) Company Secretary

72 The Companies Act, s 186

73 Ibid, s 186
74 Ibid, s 190
75 Ibid, s 196
76 Ibid, s 194(4)

55
A company secretary is a person whose job within a company is to keep the legal

affairs, accounts, and administration in order. The company’s secretary is with a

senior position in a company, dealing with legal and administrative matters.77

Every company must have secretary except limited liability single shareholder

company.78 A public company must have at least one company secretary. The

secretary’s service address will be published in the public register and may be

different from his/her residential address. If the company’s registered office is

used, then “The Company’s Registered Office” should be entered.

It is the duty of the directors of a public company to take all reasonable steps to

secure that the Secretary (or each joint secretary) of the company is a person

who appears to them to have the requisite knowledge and experience to

discharge the functions of the Secretary of a public company.79

The company secretary is responsible for regulating and efficiently managing the

financial, legal and statutory requirements. Along with that he has to comply with

the corporate governance that includes the welfare of all the stakeholders of the

company vis-à-vis shareholders, employees, customers, suppliers, financiers,

government and the society.

77 Naidoo, M, South Africa's New Companies Act: Key features for non-profit companies, GAA
Accounting, South African Institute of Chartered Accountants, (21 June 2012).
78 The Companies Act, s 187(1) as amended by the Business Laws (Miscellaneous Amendments)

Act, 2012
79 Ibid, s 187(2)

56
The general functions of a company secretary include his or her presence at all

meetings of the company and of the directors. In these meetings, his or her

functions include issuing notices of the meetings, making proper minutes of

meeting proceedings and conduct all correspondences with the

shareholders. He or she is also in charge of the books of the company i.e. the

register of directors and members of the company, the register of debentures,

and making all necessary returns to the registrar of companies like the filing of

annual returns, change of address and inform the Registrar of Companies about

any changes that have taken place at a particular period in the company

through prescribed forms to wit change of directors or members and the like.

These functions are designed to protect the shareholders and other authorized

officers of the company when carrying out their activities to achieve company

objectives for which purpose the companies were formed.

(vii) Capital

There must be a statement of capital in the company’s constitution before

incorporation. The statement of capital must show with regards to the issued

capital: the total number of shares of the company, the aggregate nominal value

of those shares, and for each class of shares, the rights attached to the shares,

the total number of shares of that class, and the aggregate nominal value of

shares of that class, and the amount paid up on each share (whether on account

of the nominal value of the share or by way of premium).

57
 4.3 Procedures of Incorporating a Company

There are several procedures which should be complied in order to incorporate

the company successful. You are going to learn the important procedures

hereunder-

(i) Identification of Type of a Company

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.80 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.81 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

80 The Companies Act, s 3(2) (c)

81 Ibid, s 10(1)
58
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.82

Then, 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.83 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

82 The Companies Act, s 10(3)

83 Ibid, ss 3(3), 4, 15 and 114
59
finance, or the Capital Markets and Securities Authority or such other authority as

may be designated for the purpose.84

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.

(ii) Desirability of Company’s Name

The next procedure is to obtain a desirable name of the company to be

incorporated. The incorporator must next decide on a suitable name. The

Companies Act requires the name to be started in the memorandum of

association, on a company seal, on a business letters, negotiable instruments and

order forms and must be affixed outside every office or place of business.

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

OBRS password to in order to login in into the OBRS system. Then, you are to type

84 The Companies Act, s 114

60
the intended name of the company and wait for two hours. You will be notified

as to whether you can proceed or not

Therefore, the incorporator needs to conduct a name search to see the

availability of the company name that will be used. If the search is clear than

either reserve the name, if company is to be incorporated at a later stage or fill in

form 14a, form 14b and prepare the Memorandum and Articles of Association for

filing at BRELA.

Private limited company must contain the word limited at the end of its name.

Section 3285 provides 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 386 provides that 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.

(iii) Preparation of Company’s Constitution

85 The Companies Act, Cap. 212 RE 2002

86 Ibid
61
Company constitution consists of memorandum and articles of association. The

Companies Act provides that a regards each of the various types of companies,

these documents shall be in the form specified by regulations. The present

Regulations contain five Tables i.e. Table A, B, C, D & E. Table A deals with public

or private limited by shares. Table B is for a public limited company Table C relates

to a company limited by Guarantee without a share capital. Table E relates to an

unlimited company having a share capital.

Table A prescribes model articles for a company. It 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. The

model article in Table C and Table D 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.

(iv) Lodging Necessary Documents

The other step is to lodge certain documents at the companies’ Registry. One of

these documents are the Memorandum and articles of associations. They must

each have been signed by each subscriber in the presence of at least one

attesting witness.

62
The other documents are 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.

(v) Registration of a Company

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.

63
Section 1587 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.

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.

(vi) 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, there is need to obtain additional certificate as the amount of allotted

share capital.88

The company shall not commence any business or exercise any borrowing

powers until the Registrar has issued it with a certificate of commencement or

trading certificate. If any public company commences business or exercises

87 The Companies Act, Cap. 212 RE 2002

88 The Companies Act, s 114
64
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 an

offer document which prior to its registration must be approved by the capital

Markets and Securities Authority. An offer document is in essence an invitation to

the general public to subscribe for shares

In the word of section 4489, 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) 90 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.

89 The Companies Act, Cap. 212 RE 2002

90 Ibid
65
 4.4 Compliance of Requirements and Procedures

Compliance with all requirements relating to formation of the company is

declared in form no.14b which is sworn before Commissioner for oath. Particulars

of directors are given through form no. 14a and notice of the situation of the

registered office is also given through the same form no. 14a, where physical

locations and postal address must be provided.

The process of company registration is done under the law and is a transparent

one. If the correct procedure is followed, the process takes approximately three

days and not more than five days. If after five days the process is not completed,

an applicant may demand, as of right, to see any member of the management

who will provide an explanation or assist the applicant to be informed of reasons

for delay. The office sincerely looks forward to having cooperation from the

stakeholders whose views and suggestions on the improvement of services of the

registry are taken very seriously.

4.5 Effects of incorporation

There are various effects associated with the incorporation of the company. You

are going to learn some major ones:

(i) Certificate of Incorporation

66
The certificate of incorporation is conclusive evidence that the registration

requirements of the Companies Act have been complied with. The certificate is

signed by the registrar of companies or authenticated by his/ her’s official seal.

The certificate of incorporation evidences the existence of the company from the

date of incorporation.91

The certificate of incorporation shows: the name and registered number of the

company, the date of its incorporation, whether it is limited by shares, limited by

guarantee or is an unlimited company, whether it a private or public company

and whether the registered office is in Tanzania.

(ii) Corporate Personality

Once a certificate of incorporation, the subscribers to the memorandum of

association, together with any future members, become a body corporate by the

name stated in the certificate of incorporation, which is capable of exercising all

the functions of an incorporated company. The subscribers to the memorandum

of association become holders of any shares mentioned in the statement of

capital and initial shareholdings.92

91 The Companies Act, s 16(1)

92 Ibid, s 16(2)
67
 4.6 Summary

In this chapter, you have learnt that turning your business into registered company

is legal process. It involves the legal requirements and procedures. The process

governed by laws of the place where person want to form a company. When a

company is incorporated, it becomes its own legal business structure set apart

from the individuals who founded the business. You have learnt that the process

of company registration is done under the law and is a transparent one. If the

correct procedure is followed, the process takes approximately three days and

not more than five days.

4.7 Activity

Jitegemee group of entrepreneurs wants to establish their business as company.

However, they are not aware of how to go about until their business is registered

as company. They are aware that you are pursuing law of business association.

They have come to seek legal advice. Advise them accordingly.

4.8 Review Questions

1. What is incorporation of a company? Is the incorporation of a company

significant?

2. Discuss what it takes to incorporate a company in Tanzania.

3. Describe the procedures for incorporation of a company in Tanzania

68
 4. What are the legal implications when the company is said to be

incorporated?

4.7 References

Martin, E (ed.), A Dictionary of Law, Oxford University Press, United Kingdom, 2003

Business Jargons, Memorandum of Association, published at

https://businessjargons.com/memorandum-of-association.html. (accessed on

5th September 2018)

Naidoo, M, South Africa's New Companies Act: Key features for non-profit

companies, GAA Accounting, South African Institute of Chartered Accountants,

(21 June 2012).

69
 CHAPTER 05

CORPORATE PERSONALITY

5.0 Introduction

Companies are enterprises. They are also the legal persons. They are business

entities. A business once incorporated, it gains a separate corporate personality

from its members. This chapter gives highlight on the principle of corporate

personality. It describes what is corporate personality, its origin, essence, nature

and operation. It gives you learning adventure on the doctrine of corporate

personality.

5.1 Objectives

The main aim of this chapter is to impart a comprehensive understanding of the

doctrine of corporate personality. At the end of this chapter you should be able

to: -

 Explain the concept of corporate personality and veil of incorporation;

 Account for growth and development of the doctrine of corporate

personality;

 Describe major theories of doctrine of corporate personality;

70
  Explain nature and operation of the doctrine of corporate personality; and

 Discuss the circumstances under which the corporate personality can be

waived.

5.2 Corporate Personality

Corporate personality encompasses the capacity of a corporation to have a

name of its own, to sue and be sued, and to have the right to purchase, sell, lease,

and mortgage its property in its own name.

It is the principle which provides distinct status of a business organization that has

complied with law for its recognition as a legal entity and that has an

independent legal existence from that of its officers, directors, and shareholders.93

5.3 Elements of Corporate Personality

The concept of corporate personality signifies various elements. The elements of

the corporate personality are hereby explained.

(i) Independent Legal Person

Corporate personality is the fact stated by the law that a company is recognized

as a legal entity distinct from its members. A company with such personality is an

93All Answers ltd, ' PRINCIPLES OF CORPORATE Personality' (Lawteacher.net, September 2018)
<https://www.lawteacher.net/free-law-essays/company-law/principles-of-corporate-
personality-company-law-essay.php?vref=1> accessed 6 September 2018
71
independent legal existence separate from its shareholders, directors, officers

and creators

(ii) Locus standi to sue or be sued

A company may sue or be sued in its own name. The company must take the

initiative to sue the other party by using its own name or handle any possibilities of

criminal complaint that might be filed against it. For instance, John as a director

cannot take an action against one of his employee for money laundering. It is the

company’s position to sue the employee for the wrongdoing.

The company must take the initiative to sue the other party by using its own name

or handle any possibilities of criminal complaint that might be filed against it. This

was demonstrated in the case of Foss v Harbottle94.

(iii) Proprietary Interest

This doctrine implies that a company can hold and dispose its properties. Neither

members nor creditors have any legal or equitable interest in the company’s

assets.95 Regardless if members have a profitable interest in the assets, the

separate personality principle applies even to their detriment, enforcing that the

company’s assets do not belong to its owners. For instance, a sale by a member

94 (1843) 67 ER 189
95 Macaura v Northern Assurance Co. Ltd [1925] AC 619
72
to a company is not a sale to himself, since those assets now become company

property in which the member has no legal interest.96

(iv) Capacity to enter contracts

Also, the doctrine denotes that a company can enter into contracts and

transactions, even with its members, as a result of separate personality, whether it

is a contract of sale or contract of employment.

(v) Perpetual existence

In addition, the corporate personality connotes that companies have perpetual

existence even after the death of all members.97 Thus ownership change and

share trading will not affect its continuous existence, unlike partnerships. The

principle of perpetual succession is clearly illustrated in the case of Re Noel

Tedman Holdings Pty Ltd (1967).98

5.4 Origin of Corporate Personality

The jurisprudence theories on juristic person had been established since the early

Roman law to justify the existence of legal person other than the human. The

96 Farrar v Farrars Ltd [1888] 40 Ch. D 395

97 Re Noel Tedman Holdings Pty Ltd [1967] QD R651
98 (http://www.jrank.org/finance/pages/3723/perpetual-succession.html. (accessed on 6th

September 2018)
73
State, ecclesiastical bodies and education institutions had long been recognized

as having legal entity distinct from the members.

However, the doctrine of corporate personality originated from the celebrated

case of Salomon v Salomon and Co Ltd.99 Here, a sole trader had formed a

company, sold his business to it for £39,000 and had been largely paid for it by

taking 20,000 shares in the company and £10,000 worth of debentures. The

requirement at that time for a limited company to have a minimum of seven

members was satisfied by the trader’s wife and his five children, each being issued

with one share. The company declined into insolvent liquidation and there were

insufficient assets to satisfy all the creditors. In these circumstances, the validity of

the debentures issued to Salomon was challenged, especially since, on the

evidence, it was established that too high a value had been placed on the

business. The liquidator also put in a claim for an order that Salomon be made

liable to indemnify the company for its debts.

The decision of the House of Lords can be summarised in the following way. Once

registered in a manner required by the Act, a company forms a new legal entity

separate from the shareholders, even where there is only a bare compliance with

the provisions of the Act and where the overwhelming majority of the issued

shares are held by one person. Furthermore, and importantly, merely because all,

or nearly all, of the company’s issued shares are held by one individual, there does

99 [1897] AC 22.
74
not arise by reason of that fact an agency relationship between the shareholder

and the company. It is also worth noting that these conclusions are premised on

the basis that there was no fraud perpetrated by the corporator and that their

Lordships did not rule out the possibility of an agency relationship arising by virtue

of other circumstances. Finally, it was stated that the motives behind the

formation of a corporation, once it is registered, are irrelevant in determining the

rights and liabilities of the company. None of the judgments, at any level of the

litigation, really denied that the company existed or that it was a separate legal

entity and there was, in any case, no jurisdiction to do so.

5.5 Theories of Corporate Personality

There are five principal theories, which are used to explain corporate personality,

namely, the fiction theory, realist theory, the purpose theory, the bracket theory

and the concession theory.

(i) Fiction Theory

The fiction theory of corporation is said to be promulgated by Pope Innocent IV

(1243-1254). This theory is supported by many famous jurists, particularly, Von

Savigny, Coke, Blackstone and Salmond.

According to this theory, the legal personality of entities other than human beings

is the result of a fiction. The famous case of Salomon v A Salomon Co Ltd is a proof

of the English court adoption of the fiction theory. In this case, Lord Halsbury stated
75
that the important question to decide was whether in truth an artificial creation

of the legislature had been validly constituted. It was held that as the company

had fulfilled requirements of the Companies Act, the company becomes a

person at law, independent and distinct from its members.

(ii) Concession Theory

Under the concession theory, the state is considered to be in the same level as

the human being and as such, it can bestow on or withdraw legal personality

from other groups and associations within its jurisdictions as an attribute of its

sovereignty. Hence, a juristic person is merely a concession or creation of the

state.

Concession theory is often regarded as the offspring of the fiction theory as it has

similar assertion that the corporations within the state have no legal personality

except as it is conceded by the state. Exponents of the fiction theory, for example,

Savigny, Dicey and Salmond are found to support this theory.

Nonetheless, it is obvious that while the fiction theory is ultimately a philosophical

theory that a corporation is merely a name and a thing of the intellect, the

concession theory is indifferent as regards to the question of the reality of a

corporation in that it focusses on the sources of which the legal power is derived.

(iii) Purpose Theory

76
The purpose theory is also known as the theory of Zweckvermogen. The

advocates who are associated with this theory are E.I Bekker, Aloys Brinz and

Demilius.

Similar to the fiction and concession theories, it declares that only human beings

can be a person and have rights. Under this theory, juristic person is no person at

all but merely as a “subject less” property destined for a particular purpose and

that there is ownership but no owner. The juristic person is not constructed round

a group of person but based on the object and purpose. The property of the

juristic person does not belong to anybody but it may be dedicated and legally

bound by certain objects.

(iv) Symbolist Theory

The Symbolist theory is also known as the “bracket” theory. It was set up by Jhering

and later developed particularly by Marquis de Vareilles-Sommiéres.

Basically, this theory is similar to the fiction theory in that it recognizes that only

human beings have interests and rights of a legal person. According to Jhering,

the conception of corporate personality is indispensable and merely an

economic device by which simplify the task of coordinating legal relations.

Hence, when it is necessary, it is emphasized that the law should look behind the

entity to discover the real state of affairs. This is clearly in line with the principle of

lifting of the corporate veil.

77
 (v) Realist Theory

The realist theory, founded by German jurist, Johannes Althusius has been most

prominently advocated by Otto von Gierke. According to this theory, a legal

person is a real personality in an extra juridical and pre-juridical sense of the word.

It also assumes that the subjects of rights need not belong merely to human beings

but to every being which possesses a will and life of its own. As such, being a juristic

person and as ‘alive' as the human being, a corporation is also subjected to rights.

Under the realist theory, a corporation exists as an objectively real entity and the

law merely recognizes and gives effect to its existence. The realist jurist also

contended that the law has no power to create an entity but merely having the

right to recognize or not to recognize an entity. A corporation from the realist

perspective is a social organism while a human is regarded as a physical

organism. A corporation from the realist perspective is a social organism while a

human is regarded as a physical organism.

5.6 Corporate Personality in Tanzania

Section 15 (2) of the Companies Act100 provides inter alia the doctrine of

corporate personality. It provides that the subscribers to the memorandum,

together with such other persons as may from time to time become members of

the company, shall be a body corporate by the name contained in the

100 Cap. 212 RE 2002

78
memorandum, capable of exercising all the functions of an incorporated

company.

The doctrine of corporate personality has been celebrated in the case of Yusufu

Manji v Edward Masanja and Abdallah Juma101 where the court held that While

a company is at law a different person altogether from the subscribers, in certain

special and exceptional circumstances, the Court may go beyond the purview

of this principle by what was described in Salomon v. Salomon as lifting the veil.

5.7 Corporate Veil or Veil of Incorporation

The 'veil of incorporation' can be described as being the separation between a

company and its members. Due to the separate legal status of a company from

its members this is usually very strictly maintained.

Also, corporate veil is a legal concept that separates the personality of a

corporation from the personalities of its shareholders, and protects them from

being personally liable for the company's debts and other obligations. This

protection is not ironclad or impenetrable. Where a court determines that a

company's business was not conducted in accordance with the provisions of

corporate legislation (or that it was just a façade for illegal activities) it may hold

101 [2006] TLR 128

79
the shareholders personally liable for the company's obligations under the legal

concept of lifting the corporate veil.102

Veil of incorporation separates the personality of a corporation from the

personalities of its shareholders and protects them from being personally liable for

the company’s debts and other obligations.

5.8 Lifting or Piercing Corporate Veil

Lifting of the corporate veil means disregarding the corporate personality and

looking behind the real person who are in the control of the company. It implies

discounting the general rule a corporation is a legal entity distinct from its

shareholders by regarding the company as a mere agent or puppet of a

controlling shareholder or parent corporation.103

It refers to the situation where a shareholder is held liable for its corporation’s debts

despite the rule of limited liability and separate personality. The veil doctrine is

invoked when shareholders blur the distinction between the corporation and the

shareholders. A company or corporation can only act through human agents

that compose it. As a result, there are two main ways through which a company

becomes liable in company or corporate law. First, through direct liability i.e. for

102 Business Dictionary, http://www.businessdictionary.com/definition/corporate-veil.html.

(accessed on 6th September 2018)
103 Duhaime, Duhaime’s Law Dictionary,

http://www.duhaime.org/LegalDictionary/L/LiftingtheCorporateVeil.aspx. (accessed on 6th

September 2018)
80
direct infringement and second through secondary liability i.e. for acts of its

human agents acting in the course of their employment.

There are certain circumstances when the courts will deny the people who run

the company the advantage of hiding behind the corporate veil. In these

instances, the veil of incorporation is said to be 'pierced' or 'lifted', i.e. the barrier

between a company and its members is removed so there is no legal separation

between them.

In the case of United States v Milwaukee Refrigerator Co.104, the court of was of

the opinion that 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.

This was cemented in the case of the case of Yusufu Manji v Edward Masanja and

Abdallah Juma105 where the court held that While a company is at law a different

person altogether from the subscribers, in certain special and exceptional

circumstances, the Court may go beyond the purview of this principle by what

was described in Salomon v. Salomon as lifting the veil.

104 (1905) 142 F, edn. 247

105 [2006] TLR 128
81
 5.9 Theories on Lifting Corporate Veil

There are two existing theories for the lifting of the corporate veil. The first is the

“alter-ego” or other self-theory, and the other is the “instrumentality” theory.

The alter-ego theory considers if there is in distinctive nature of the boundaries

between the corporation and its shareholders.

The instrumentality theory on the other hand examines the use of a corporation

by its owners in ways that benefit the owner rather than the corporation. It is up

to the court to decide on which theory to apply or make a combination of the

two doctrines.

5.10 Circumstances to lift corporate veil / veil of incorporation

In a number of circumstances, the court will pierce the corporate veil or will ignore

the corporate veil to reach the person behind the veil or reveal the true form and

character of the concerned company.

There instances are however, difficult to predict as the reasons depend on the

judges’ interpretation of "fairness" or "policy" or of how a particular statute should

be interpreted

The rationale behind this is probably that the law will not allow the corporate form

to be misused or for the purposes which is set out in the statute. In those

circumstances in which the court feels that the corporate forms are being misused

82
it will rip through the corporate veil and expose its true character and nature

disregarding the Solomon principal as laid down by the house of lords.

(i) Fraud

The courts have been more that prepared to pierce the corporate veil when it

fells that fraud is or could be perpetrated behind the veil. The courts will not allow

the Solomon principal to be used as an engine of fraud.

In the case of Jones v Lipman106 a man contracted to sell his land and thereafter

changed his mind in order to avoid an order of specific performance he

transferred his property to a company. Russel judge specifically referred to the

judgments in Gilford v. Horne and held that the company here was " a mask which

(Mr. Lipman) holds before his face in an attempt to avoid recognition by the eye

of equity" he awarded specific performance both against Mr. Lipman and the

company.

Under no circumstances will the court allow the ant form of abuse of the

corporate form and when such abuse occurs the courts will step in and Jennifer

Payne in her article lists three aspects of fraud, which needs to be looked at

before the corporate veil can be lifted.

(ii) Group Enterprises

106 [1962] 1 All ER 442

83
Sometimes in the case of group of enterprises the Solomon principal may not be

adhered to and the court may lift the veil in order to look at the economic realities

of the group itself.

In the case of D.H.N. food products Ltd. v Tower Hamlets London Borough

Council107 it has been said that the courts may disregard Solomon's case

whenever it is just and equitable to do so. In the above-mentioned case the court

of appeal thought that the present case where it was one suitable for lifting the

corporate veil. Here the three subsidiary companies were treated as a part of the

same economic entity or group and were entitled to compensation.

Also, in the case of Smith Stone v Knight Birmingham Corporation108the court

considered various factors relevant in determining whether a subsidiary was in

fact acting as an agent of the parent. The issues to consider were whether profits

were treated as profits of the parent, whether the parent governed the business

of the subsidiary and whether the parent was in effectual and constant control.

In the past, the corporate veil has been lifted where a group of companies have

been viewed as a single economic entity

(iii) Tax Evasion and Avoidance

107 [1976] 1 WLR 852

108 [1939] 4 All ER 116,
84
At times tax legislations warrant the lifting of the corporate veil. The courts are

prepared to disregard the separate legal personality of companies in case of tax

evasions or liberal schemes of tax avoidance without any necessary legislative

authority. Hence, the Court has the power to disregard corporate entity if it is used

for tax evasion or to circumvent tax obligations.

(iv) Enemy character

A company may assume an enemy character when persons in de facto control

of its affairs are residents in an enemy country. In such a case, the Court may

examine the character of persons in real control of the company, and declare

the company to be an enemy company.

In the case of Daimler Co. Ltd v Continental Tyre and Rubber Co. Ltd109, a

company was incorporated in England for the purpose of selling in England, tyres

made in Germany by a German company which held the bulk of shares in the

English company. The holders of the remaining shares, except one, and all the

directors were Germans, residing in Germany. During the First World War, the

English company commenced action for recovery of a trade debt.

109 [1916]2 AC 307

85
The court held that the company was an alien company and the payment of

debt to it would amount to trading with the enemy, and therefore, the company

was not allowed to proceed with the action.

(v) Avoiding legal obligations

Where the use of an incorporated company is being made to avoid legal

obligations, the court may disregard the legal personality of the company and

proceed on the assumption as if no company existed.

The court will not hesitate to lift the corporate veil if its members used the veil as a

way to avoid an existing legal obligation. These normally occur when individuals

used the doctrine of separate legal entity to do some forbidden act.

In law, an individual is not permitted to use the company’s name with the power

in his hand to do something that is prohibited from doing as illustrated in Jones v

Lipman110. In this case, the defendant entered into a contract to sell land to the

plaintiff but he transferred the land to a company under his control. The court

ordered the corporate veil to be lifted as the defendant used the company as a

device to avoid his contractual obligations

(vi) Agency or Trust

110 [1962] 1 All ER 442

86
Where a company is acting as agent for its shareholder, the shareholders will be

liable for the acts of the company. It is a question of fact in each case whether

the company is acting as an agent for its shareholders. There may be an Express

agreement to this effect or an agreement may be implied from the

circumstances of each particular case.

In the case of Re F. G. Films Ltd111, An American company financed the

production of a film in India in the name of a British company. The president of

the American company held 90 per cent of the capital of the British company.

The Board of trade of Great Britain refused to register the film as a British film. The

court was of the view that the decision was valid in view of the fact that British

company acted merely as he nominee of the American Company.

(vii) Single Shareholder Limited Liability Company

The Business Laws (Miscellaneous Amendments) Act amended section 26 of the

Companies Act112 by adding subsection (2) which imposes the liability of single

shareholder. The amendment unveils the corporate veil of limited liability single

shareholder company when such single shareholder contravenes the provisions

of the Companies Act. It provides that the single shareholder can be sued

personally and on his or her own name.

111 [1953] 1 All ER 615 (Ch D)

112 Cap. 212 RE 2002
87
 (viii) Fraudulent Trading

The court may be willing to pierce the corporate veil if it is found that the owners

are plotting fraudulent scheme behind the veil of incorporation. By carrying on a

business with the intention to cheat others, the company are said to be doing

fraud where the veil will be lifted.

When this happens, all members of the company with knowledge of this action

are guilty of the crime and may be put responsible for the debts and other

liabilities of the company without any limitation.

By referring to the case of Re William C. Leitch Brs Ltd113, the company was

insolvent but one of its director still run the business normally by purchasing goods

from its suppliers on credit. Since there is element of fraud existed, the court

disclosed that particular director to be personally liable for the debts

5.11 Termination of Corporate Personality

Termination of corporations means extinctions of corporate personality, and the

end of corporate entrepreneurship. It happens under two kind of situation: one is

company bankruptcy; another is dissolution of a company.

Whether the company is extinction by bankrupt or dissolution, the following issue

will be liquidation. When the company is put into liquidation, the corporate

113 [1932] 2 Ch. 71

88
personality will not immediately have vanished. The company, however, have

limited capacity in the process of liquidation.

In other word, the company cannot conduct business operations within the range

as approved and registered before liquidation, only the liquidation team can

represent company conduct business operations within the range. After the

company process the nullification of registration by the registration organ, the

corporate personality is to completely extinction.

5.12 Summary

In this chapter you have learnt about the doctrine of corporate personality. You

have learnt that doctrine of corporate personality is the principle which provides

distinct status of a business organization that has complied with law for its

recognition as a legal entity and that has an independent legal existence from

that of its officers, directors, and shareholders. You have also learnt that the

corporate veil of a company may be lifted to ascertain the true character and

economic realities behind the legal personality of the company. Undoubtedly,

the theory of corporate entity of a company is still the basic principle on which

the whole law of corporations is based. But the separate personality of the

company, being a statutory privilege, it must always be used for legitimate

business purposes only.

89
 5.13 Activity

Account for origin and development of the doctrine of corporate personality.

5.14 Review Questions

1. What is corporate personality? Explain its elements

2. Describe the origin of the doctrine of corporate personality

3. What are theories of corporate personality?

4. What is lifting corporate veil? Describe the rationale behind lifting corporate

veil.

5. Discuss with relevant authorities, the circumstances under which the veil of

incorporation can be pierced.

5.14 References

All Answers ltd, ' PRINCIPLES OF CORPORATE Personality' (Lawteacher.net,

September 2018) <https://www.lawteacher.net/free-law-essays/company-

law/principles-of-corporate-personality-company-law-essay.php?vref=1>

accessed 6 September 2018

Duhaime, Duhaime’s Law Dictionary,

http://www.duhaime.org/LegalDictionary/L/LiftingtheCorporateVeil.aspx.

(accessed on 6th September 2018)

90
 CHAPTER 06

FINANCING OF A COMPANY

6.0 Introduction

Financing is needed to start a company’s business and ramp it up to profitability.

The financial needs of a company’s business will vary according to the type and

size of the business. Hence, this chapter shades the light on the nature, modes

and sources of financing a company to run its business as well as their legal

implications.

6.1 Objectives

This chapter generally highlights on the concept and methods of financing of the

company. By the end of this chapter, you should be able to: -

 Explain the concept and significance of the financing of a company;

 Describe the methods of financing of a company;

 Evaluate the strengths and weaknesses of the source of financing a

company; and

 Advise the clients on the proper avenue to finance the company from the

legal point of view.

91
 6.2 Financing

Financing is the process of providing funds for business activities, making

purchases or investing. Financial institutions such as banks are in the business of

providing capital to businesses, consumers and investors to help them achieve

their goals.

The use of financing is vital in any economic system, as it allows companies to

purchase products out of their immediate reach. Put differently, financing is a way

to leverage the time value of money to put future expected money flows to use

for projects started today.

Financing also takes advantage of the fact that some will have a surplus of money

that they wish to put to work to generate returns, while others demand money to

undertake investment, creating a market for money.

6.3 Modes of Financing a Company

6.3.1 Equity Financing

Equity financing means exchanging a portion of the ownership of the business for

a financial investment in the business. The ownership stake resulting from an equity

investment allows the investor to share in the company’s profits. Equity involves a

permanent investment in a company and is not repaid by the company at a later

date.

92
The investment should be properly defined in a formally created business entity.

An equity stake in a company can be in the form of membership units, as in the

case of a limited liability company or in the form of common or preferred stock as

in a corporation.

Companies may establish different classes of stock to control voting rights among

shareholders. Similarly, companies may use different types of preferred stock.

For example, common stockholders can vote while preferred stockholders

generally cannot. But common stockholders are last in line for the company’s

assets in case of default or bankruptcy. Preferred stockholders receive a

predetermined dividend before common stockholders receive a dividend.

6.3.2 Categories of Equity Financing

Equity financing can be categorised in to various groups depending on the

nature of source of finance.

a) Shares / Stocks

Share is a portion of ownership interests in a corporation represented by the

certificate of stock. The said certificate of stock indicates the number of shares of

an issue of stock of corporation.

It is a unit of stock. A person who owns shares is shareholder or stockholder. Share

connotes a unit of ownership that represents an equal proportion of a company's

93
capital. It entitles its holder to an equal claim on the company's profits and an

equal obligation for the company's debts and losses.

The terms stocks and shares have been used interchangeably to the extent

people think they have the same meaning. Even though their differences are

slight, they are not the same things. These words ‘stocks’ and ‘shares’ imply

different types of relationships to the companies that a person owns.

Stocks generally imply the ownership certificates of any company. They mean the

shareholdings bought and sold in the markets. They are investments in publicly

traded companies, bought and sold on the stock exchange. They do not

describe direct relationship to the company. They are more assets, bought and

sold to make money. Stocks today, traded quickly and frequently, and they no

longer involve the issuing of share certificates that hung on the wall to show which

companies you own slices.

Shares denote the ownership certificate of a company. They mean recognised

stake a person has in the future of the company. They imply relation that investor

has to the company he or she invested. Shareholders have direct interests in the

business of the company. They attend annual meetings, read annual reports and

approve or disapprove the way business of such company run. Shares may be

categorised into ordinary and preference shares.

Types of Shares

94
Some companies can also choose to have more than one type of share. These

come with different conditions and rights and broadly are as follows:

i) Ordinary Shares

Ordinary shares are shares that entitle the shareholder to share in the earnings of

the company. When they occur, and to vote at the company's annual general

meetings and other official meetings. They are common stock. They have lower

priority for company assets and only receive dividends at the discretion of the

corporation’s management. They are generally entitled to one vote per share.

ii) Preference Shares

Preference shares are shares that entitle the shareholder to a fixed periodic

income that is interest. These shares generally do not give him or her voting rights.

They are also preferred stocks. They have the advantage of a higher priority claim

to the assets of a corporation in case of insolvency and receive a fixed dividend

distribution.

iii) Ordinary Shares

Ordinary shares are the most common type. They carry one vote per share and

they entitle the owner to participate equally in the company’s dividends. If the

organisation is wound up, the proceeds are again allocated equally.

95
Ordinary shares carry voting rights but rank after preference shares with regards

to rights to capital, in the event that the business is wound-up. It’s possible to break

these shares down into different classes, which will be explained later.

iv) Redeemable Shares

Redeemable shares are issued on the terms that the company will/may buy them

back at a future date. This is either fixed or, set at the director’s discretion. It’s

usually done with non-voting shares given to employees so that if the employee

leaves, the shares can be taken back at their nominal value.

Section 61 (1) of the Companies Act, provides for the power of a company to

issue redeemable shares. It provides that a company limited by shares may, if so

authorised by its articles, issue shares which are, or at the option of the company

are to be liable, to be redeemed

v) Non-voting Shares

Non-voting ordinary shares usually carry no right to vote and no right to attend

general meetings. These shares are usually given to employees so that

remuneration can be paid as dividends for the purposes of tax efficiency for both

parties.

b) Options

96
Options are agreements that give an investor the right, but not the obligation, to

buy a stock, bond, commodity or other instrument at a specified price within a

specific time. They are contracts under which money is for a right to buy or sell

properties or goods at fixed price by a date in the future. Considerations are

money paid for investment and rights to buy or sell in future.

c) Futures

Futures are financial contracts obligating the buyer to purchase an asset or the

seller to sell an asset, such as a physical commodity or a financial instrument, at a

predetermined future date and price. They are binding contracts to buy or sell

something on the date in future at a fixed price. The commodities are these

futures are stocks.

They involve agreement to buy shares of commodity at a fixed price but with

delivery and payment occurring at an agreed upon date in the future. If the

prices of shares rise during that period, the seller pays the buyer the difference

between the agreed price and the current price. If the price drops, the buyer

pays the seller the difference.

d) Warrants

Warrants are special type of instruments used for long-term financing. They are

useful for start-up companies to encourage investment by minimizing downside

97
risk while providing upside potential. For example, warrants can be issued to

management in a start-up company as part of the reimbursement package.

A warrant is a security that grants the owner of the warrant the right to buy stock

in the issuing company at a pre-determined (exercise) price at a future date

(before a specified expiration date). Its value is the relationship of the market

price of the stock to the purchase price (warrant price) of the stock. If the market

price of the stock rises above the warrant price, the holder can exercise the

warrant. This involves purchasing the stock at the warrant price. So, in this situation,

the warrant provides the opportunity to purchase the stock at a price below

current market price.

If the current market price of the stock is below the warrant price, the warrant is

worthless because exercising the warrant would be the same as buying the stock

at a price higher than the current market price. So, the warrant is left to expire.

Generally, warrants contain a specific date at which they expire if not exercised

by that date.

6.3.3 Debt Financing

Debt financing involves borrowing funds from creditors with the stipulation of

repaying the borrowed funds plus interest at a specified future time. For the

creditors, the reward for providing the debt financing is the interest on the amount

lent to the borrower.

98
Debt financing may be secured or unsecured. Secured debt has collateral.

Conversely, unsecured debt does not have collateral and places the lender in a

less secure position relative to repayment in case of default.

Debt financing may be short term or long term in their repayment schedules.

Generally, short-term debt is used to finance current activities such as operations

while long-term debt is used to finance assets such as buildings and equipment.

a) Bonds

These are promises to repay debts at agreed time and agreed interest rates on

the debt. They are promises of repayment of debts. These are promises, reduced

in written format. These promises connote the repayment of debt at time agreed

by the parties. Moreover, the repayment of such debt is associated with interests’

rates according to the agreement. Bonds are the promises of debts and

repayment of those debts. These promises form the contracts that are

enforceable by the law when they comply with the essentials of the law on the

same.

In other words, bonds are fixed income investment in which an investor loans

money to an entity that borrows the funds for a defined period at a variable or

fixed interest rate. Bonds are debt obligations. Investors who buy corporate bonds

are lending money to the company issuing the bond. In return, the company

99
makes a legal commitment to pay interest on the principal and, in most cases, to

return the principal when the bond comes due, or matures.

The parties to the bond are two. These are issuers of bonds and investors. The

issuers may be the government and corporate bodies. The issuers issue bonds for

purpose of offering and raising funds to the investors. The investors accept the

bonds issued and give fund to the issuers. Companies, municipalities, states and

sovereign governments to raise money and finance a variety of projects and

activities use bonds. Owners of bonds are debt holders, or creditors, of the issuer.

When companies or other entities need to raise money to finance new projects,

maintain ongoing operations, or refinance existing debts, they may issue bonds

directly to investors instead of obtaining loans from a bank. The issuer of bond

contractually states the rates of interests on the debt paid and the time at which

the loaned funds returned. The interest rate is the return that bondholders earn for

loaning their funds to the issuer.

Types of Bonds

There are various types of bonds: -

i) Treasury Bonds

These are promises by the Government treasury to repay money it has borrowed

for government spending. Treasury bonds are a secure, medium- to long-term

100
investment that typically offer investor interest payments every specified period

throughout the bond’s maturity.

Treasury bonds are debt instruments issued by the Governments in exchange for

money borrowed from the public. They are long-term securities maturing over a

year. They are for financing government activities. The Bank of Tanzania auctions

them at regular intervals by through a competitive tender system in the primary

market and subsequently sold and purchased on a continuous basis in the

secondary market.

When the government issues a bond it divides that bond into smaller proportions,

sold at a price called the face value. The Government promises investors

payment of some interests on the borrowed amount; interests paid annually or

semi-annually. Investors, promised repayment of the borrowed amount after the

bond matures.

Treasury bonds have several advantages as securities. They are relatively risk free

since the government issues them. In addition, they are negotiable instruments.

Moreover, they are collaterals for loans. In addition, their return rates are

competitive and fair.

The treasury bonds in Tanzania securities market have four maturities of 2, 5, 7 and

10 years. They issued in the primary market by the bank on behalf of the

government. They dominated by pension funds. The auction is once every month.

101
The bonds’ listing is at the Dar es Salaam Stock Exchange (DSE). Secondary

market trading of government bonds has not been vibrant.

ii) Corporate Bonds

These are bonds issued by the corporate bodies to raise their fund or capital. The

raised fund to reinvest in their operations, buy other companies or even pay off

older, more expensive loans. They are to raise financing for a variety of reasons.

Corporations often turn to the corporate bond market to borrow money, when

they intend to expand their operations or fund new business ventures. A

corporation determines how much it would like to borrow and then issues a bond

offering in that amount. Investors that buy a bond are effectively lending money

to the corporation according to the terms established in the bond offering or

prospectus.

The corporation divides it into small proportions when a company issues a bond.

These small proportions are at a price called the face value. The corporation

promises investors payment of some interests on the borrowed amount. The

interests’ payment is annually or semi-annually. Moreover, the investors, promised

repayment of the borrowed amount after the bond matures.

For instance, in Tanzania, DSE issues and lists six corporate bonds. These are EADB

(bond worth TZS 15.0 billion), PTA Bank (TZS 15.0 billion), Barclays Bank Tanzania Ltd

102
(TZS 10.0 billion), Standard Chartered Bank Tanzania Ltd (TZS 8.0 billion), BIDCO Oil,

and Soap Co. Ltd.

Corporate bonds as securities have good number of advantages. First, they add

diversification to an equity portfolio as well as diversify a fixed income portfolio of

government bonds or other fixed income securities. Second, they have the

potential to provide attractive income. Third, most corporate bonds pay on a

fixed semi-annual schedule. Fourth, they can provide higher yields than

comparable maturity government bonds. Finally, yet importantly, their sales are

at any time prior to maturity in a large and active secondary trading market.

Since corporate bonds are investment vehicles, they are prone to risks. Interest

rate risk exposes them. In addition, they have credit or default risk. Credit or

default risks imply the risk that the borrower fails to repay the loan and defaults on

its obligation. The level of default risk varies based on the underlying credit quality

of the issuer.

6.3.4 Leasing

A lease is a method of obtaining the use of assets for the business without using

debt or equity financing. It is a legal agreement between two parties that

specifies the terms and conditions for the rental use of a tangible resource such

as a building and equipment.

103
Lease payments are often due annually. The agreement is usually between the

company and a leasing or financing organization and not directly between the

company and the organization providing the assets. When the lease ends, the

asset is returned to the owner, the lease is renewed, or the asset is purchased.

A lease may have an advantage because it does not tie up funds from

purchasing an asset. It is often compared to purchasing an asset with debt

financing where the debt repayment is spread over a period of years.

However, lease payments often come at the beginning of the year where debt

payments come at the end of the year. So, the business may have more time to

generate funds for debt payments, although a down payment is usually required

at the beginning of the loan period.

6.4 Summary

In this chapter, you have learnt the concepts, nature, methods and sources of

financing a company to run its business as well as their legal implications. Also,

financing is vital in any economic system, as it allows companies to purchase

products out of their immediate reach. There are three major methods of

financing a company. These are equity, debt financing and leasing. Equity

financing entails exchanging a portion of the ownership of the business for a

financial investment in the business. Debt financing involves borrowing funds from

creditors with the stipulation of repaying the borrowed funds plus interest at a

104
specified future time. Leasing deals with obtaining the use of assets for the

business without using debt or equity financing.

6.5 Activity

Discuss the pros and cons of each method of financing a company.

6.6 Review Questions

1. What is financing of a company? Explain the relevance of financing of a

company.

2. Discuss with examples the methods of financing a company.

3. What do you understand by the term bonds? Describe types of bonds with

examples.

4. Define the term shares. Explain the advantages and disadvantages of using

shares are source of financing a company.

5. Describe the categories of the equity financing of a company.

6.7 References

Bank of Tanzania, Guidelines for participation in primary and secondary markets

for treasury bonds, 2015

Bank of Tanzania, Financial Markets in Tanzania,

https://www.bot.go.tz/financialmarkets/FinMarketsInTanzania.asp (accessed on

6th April 2018 at 09h53)

105
Burton, W.C, Burton's Legal Thesaurus, 4th edition, The McGraw-Hill Companies,

Inc. 2007,

Central Bank of Kenya, Treasury Bonds, available at

https://www.centralbank.go.ke/securities/treasury-bonds/ (accessed on 6th April

2018 at 08h09)

Clarke, R.G, Fundamentals of Futures and Options, Research Foundation of CFA

institute, 2013,

DSE, Government Bonds, available at http://www.dse.co.tz/content/listed-bonds

(accessed on 6th April 2018 at 08h54)

PIMCO, Understanding Corporate Bonds, available at

https://global.pimco.com/en-gbl/resources/education/understanding-

corporate-bonds (accessed on 6th April 2018 at 09h36)

Securities and Exchange Commission, what are corporate bonds? Investor

Bulletin

106
 CHAPTER 07

MANAGEMENT AND ADMINISTRATION OF COMPANY

7.0 Introduction

A company’s administration and management is the backbone of any successful

company. It is management that ultimately makes the strategic decisions which

affect the operation of the company. This chapter shades light of knowledge on

the company’s management requirements, principles and aspects.

7.1 Objectives

This chapter aims at imparting knowledge related to company’s management

and administration. By the end of this chapter, you should be able to: -

 Explain the concept of company’s management;

 Identify and describe who are responsible for management of the

company; and

 Identify and discuss aspects related to company’s management and

administration such as meetings, resolutions, returns, accounts and taxation

of a company.

107
 7.2 A Company’s Management

Management is to have the business smarts to run a company in the interest of

the owners. It is in charge of creating value for shareholder. it is unrealistic to

believe that management only thinks about the shareholders. Management must

have some actual reason to be beneficial to shareholders.

For a company to run smoothly and effectively it is vital that a person filling either

role of managing a company understands their responsibilities and rights.

Individual companies may amend the roles to be fulfilled by directors and

shareholders in their constitution or articles.

For the purpose of management and control, company stakeholders can be

divided into three groups or levels which include members, directors and

employees. Members are those who have invested and have equity interest in

the company. Directors are those who are appointed in accordance with The

Companies Act for the day to day running of the companies. Finally, employees,

some of whom are officers in management positions in the company. These

persons through whom the company operates and executes its objectives are

directly or indirectly vested with various duties and obligations for the business

affairs of the company within The Companies Act.

108
 7.3 Regulation of A Company’s Management

The provisions for control and regulation of the company are provided by two

main instruments which are The Companies Act and its individual

constitution. The later regulates internal business affairs and how the company

members relate and make decisions for the company affairs.

The constitution of any company is legally called The Memorandum and Articles

of Association. The Memorandum stipulates company objectives while the

Articles of Association provide for the regulation of company members and

directors.

Every decision made in the company has to conform and comply with the

Memorandum and Articles of Association, and the Companies

Act. Transparency, involvement and accountability are the main pillars of the

decision making in The Companies Act for every decision made has to carry the

company’s business interest.

The decision making body for a company’s daily operations consists mainly of

directors and the company secretary, who pass various decision through

resolutions.

109
 7.4 Who Manages a Company?

The directors of a company have all the powers necessary for managing, and for

directing and supervising the management of, the business and affairs of a

company.114

7.5 Directors of Company

Directors are person who conduct the affairs of a company. They are officers of

the company who are responsible for managing the company and making the

decisions as to its operation on a day to day basis, for the benefit of the

shareholders.

Directors are responsible for the policy making, but not day-to-day operation,

which is handled by officers and other managers. In some cases, a director may

also be an officer, but need not be a shareholder. However, the same person can

be both a director and a shareholder, and this is usually the case in private

companies. On the other hand, a director need not be a shareholder or vice

versa.

Directors act as agents of the company, owe fiduciary duties to it and have a

duty of care towards it. Directors may have executive functions or they may be

114 The Companies Act, s 181

110
non-executive directors, their principal functions being to safeguard the interests

of investors.

7.6 Board of Directors

The composition of a company's board of directors follows a unitary structure,

consisting of executive (and if wanted, non-executive) directors and a chairman

of the board. Normally under the articles of associations, the directors of the

company can delegate their powers to a committee consisting of one of more

directors. The directors can appoint one of their number to be the chairman of

the board of directors and determine the period for which he is to hold office.

The minimum number of directors of every company is two directors except for a

single shareholder limited company which needs one director. Section 186 of the

Companies Act115 provides that every company shall have at least two directors.

7.7 Appointment and Removal of Directors

Appointment of directors requires written consent of the person appointed to act

as director prior registration of articles of association or publication of the offer

documents. The written consent to act as director must signed and delivered to

the Registrar for registration of such consent.116

115 Cap 212 RE 2002 as amended by the Business Laws (Miscellaneous Amendments) Act of 2012
116 The Companies Act, s 190
111
The director must hold share qualification for qualified one or to obtain share

qualification within two months after appointment. the bearer of a share warrant

shall not be deemed to be the holder of the shares specified in the warrant for

the purpose of requiring a director or manager to hold a specified share

qualification.117

No person shall be capable of being appointed a director of a company which

is subject to this section if at the time of his appointment he had not attained the

age of twenty-one or he has attained the age of seventy.118

A person shall not be capable of being appointed director of a company, if he

has been found to be of unsound mind by a Court of competent jurisdiction and

the finding is in force.

Any person who has been declared bankrupt or insolvent by a competent court

in Tanzania or elsewhere shall be discharged from acting as director of, or directly

or indirectly takes part in or is concerned in the management of a company.119

A company director may be removed by special resolution, notwithstanding

anything in the articles or in any agreement between him and the company.

Special notice of such a resolution must be given.

117 The Companies Act, s 191

118 Ibid, s 194
119 Ibid, s 196(1)

112
A company may by ordinary resolution remove a director before the expiration

of his period of office, notwithstanding anything in its articles or in any agreement

between it and him.120

Special notice shall be required of any resolution to remove a director under this

section or to appoint somebody instead of a director so removed at the meeting

at which he is removed, and on receipt of notice of an intended resolution to

remove a director.121

Director may be disqualified from directorship when is convicted of criminal

offence in connection to promotion, formation, operation or management of a

company.122

7.8 Powers of Directors

The business of a company is managed by the directors, who may pay all

expenses incurred in promoting and registering the company, and may exercise

all such powers of the company.

The source of powers of the directors of a company are the Companies Act, by

the memorandum and articles of association and by a special resolution, required

to be exercised by the company in general meeting.

120 The Companies Act, s 193(1)

121 Ibid, s 193(2)
122 Ibid, s 197

113
The directors of a company exercise the following powers on behalf of the

company, and do so by means of a resolution passed at their meeting, namely:

 to make calls on shareholders in respect of moneys unpaid on their shares;

 to issue shares;

 to issue debentures or any instrument in the nature of redeemable capital;

 to borrow moneys otherwise than on debentures;

 to invest the funds of the company;

 to make loans;

 to authorize a director or the firm of which he is a partner or any partner of

such firm or a private company of which he is a member or director to enter

into any contract with the company for making sale, purchase or supply of

goods or rendering services with the company;

 to approve annual or half-yearly or other periodical accounts as are

required to be circulated to the members;

7.9 Duties of Director

(i) Duty to act in good faith and best interest of company

114
The directors of a company are required to act honestly and in good faith in the

best interest of the company. Section 182123 provides that a director of a

company, when exercising powers or performing duties, must act honestly and in

good faith and in what the director believes to be the best interests of the

company.

(ii) Regard interests of the company’s employees

The company’s directors have to regard for the interest of employees when

acting in their daily affairs and decision making. In performing their duties, a

director is to look after the interest of employees. Like any other fiduciary duty

owed to the company by its directors, this duty to consider the interest of

employees is an enforceable duty. Section 183124 provides for the duty of the

directors to regard the interests of the company’s employees.

(iii) Duty to exercise powers for proper purposes

The directors are obliged to apply their powers not for the benefit of what they

believe to be in the best interest of the company, but rather the proper purpose

of the company. Section 184125 provides that a director must exercise his powers

for proper purposes

123 The Companies Act, Cap 212 RE 2002

124 Ibid
125 Ibid

115
 (iv) Duty of skill, care and diligence

The company’s directors are expected to make decisions in relation to this duty

and not otherwise. The liability of negligence of directors may lead them to be

liable civilly and possibly criminally, depending on the circumstances of their acts

or omissions in relation to the company’s business. A higher level of knowledge in

the company’s affairs is expected of a director as a reasonable and responsible

person. What is reasonable to a director when acting for the best interest of the

company is what would be prudent to a reasonable and responsible person in

like circumstances where a decision is being made. Section 185126 provides for

brings accountability to directors to act with great care, skill and diligence when

implementing their statutory duties.

(v) Duty to avoid conflict of interests

The company’s directors are duty bound to avoid placing themselves in positions

in which their duties to the company will conflict with their personal interest. A

director, for instance, may not, without disclosing in a meeting of directors,

transact a contract in which he or she might have a direct or indirect interest.

The duty of conflict of interest extends to any circumstance in which directors

might be rewarded with benefits or opportunities that arise as a result of the good

126 The Companies Act, Cap 212 RE 2002

116
will of the company, or the company’s information, without consent of the

shareholders and directors of the company.

The blue print line in The Companies Act as to when a director is considered to

have drawn benefits of the company and triggered conflict of interest is when

lack of disclosure to the Board of Directors becomes apparent. In this case, a

fiduciary duty to the company is said to have been breached by the director. This

is according to section 209.127

7.10 Validity of acts of directors

The acts of a director or manager shall be valid notwithstanding any defect that

may afterwards be discovered in his appointment or qualification.128

7.11 Register of Members

Register of member is the official record of the details of the members of a

company. Every company shall keep a register of its members. Register shall

contain names and addresses, date of entering the register and shareholdings.129

The register of members shall be kept at the registered office of the company.130

Where the register of members is not kept at the registered office, every company

127 The Companies Act, Cap 212 RE 2002

128 Ibid, s 189
129 Ibid, s 115 (1)
130 Ibid, s 115 (2)

117
shall send notice to the Registrar of the place where it is kept and of any change

in that place.131

The register of members shall be prima facie evidence of any matters by the

companies Act directed or authorised to be inserted therein.132

7.12 Company’s Meetings

Company’s meeting is the formal togetherness of the members, directors or

officers of the company to discuss the company issues. It means concurrence or

coming together of at least a quorum of members in order to transact either

ordinary or special business of the company.

In the case of Sharp v Dawes133 the meeting is defined as an assembly of people

for a lawful purpose or the coming together of at least two persons for any lawful

purpose.

Characteristics of Company’s Meeting

There are various characteristics of the company’s meetings. These are: -

i) Two or more persons (who are the members of the Company) must be

present at the meeting

131 The Companies Act, s 115 (3)

132 Ibid, s 123
133 (1971)

118
 ii) The assembly of persons must be for discussion and transaction of some

lawful business.

iii) A previous notice would be given for convening a meeting.

iv) The meeting must be held at a particular place, date and time.

v) The meeting must be held as per provisions/rules of Companies Act.

Types of Company’s Meetings

(I) Shareholders’ Meetings

The shareholders are the real owners of the company, but due to certain

limitations they cannot take part in the management of the company. They leave

this to their representatives called the directors. For controlling the board of

directors and their activities ‘shareholders’ ‘meetings’ are held from time to time.

Meeting of shareholders can be classified as under.

a) Statutory Meeting

Every public company having share capital must convene a general meeting of

shareholders within a period of not less than one month and not more than six

months after the date on which it is authorised to commence its business. This is

the first meeting of the shareholders of the company and it is held once in the

whole life of the company.

119
The directors are required to send a notice of the meeting to all the members of

the company at least 21 days before the date of the meeting stating that it is the

‘statutory meeting’ of the company. If the notice convening this meeting does

not name it as the “Statutory Meeting” it will not Amount to compliance with the

provisions of this section.

The statutory meeting is held to inform the shareholders about matters relating to

incorporation, allotment of share, the details of the contracts concluded by the

company, etc. It is convened in order to afford the shareholders an opportunity

for seeing what degree of success has attained the floatation of the company

and in order that any special matters requiring their approval may be laid before

them.

The directors are required to prepare and send a report called the ‘Statutory

Report’ to every member of the company at least 21 days before the date of the

meeting. If the report is sent later it shall be deemed to have been duly forwarded

if it is so agreed to by a unanimous vote of the members entitled to attend and

vote at the meeting.

b) Annual General Meeting

It is a meeting of shareholders which is held once in a year. The object of holding

this meeting is to review the progress and prospects of the company and elect its

office-bearers for the coming year.

120
The first annual general meeting of the company is held within 18 months of its

incorporation.134 After holding such meeting, it is not necessary to hold any other

annual general meeting in the year of its incorporation and in the next year.

Subsequent annual general meeting must be held by the company each year

within six months of the closing of the financial year. In the interval between any

two annual general meetings must not be more than fifteen months. 135 The

registrar is empowered to extend the time up to a period to three months except

in the case of first annual general meeting.136

The Board of Directors has to call Annual General Meeting giving 21 days’ notice

to all the members entitled to attend the meeting. However, such a meeting may

be called with shorter notice, if it is agreed to by all the members to vote in the

meeting.137

In the annual general meeting there shall be transactions on the auditor’s report,

director’s report, annual accounts, appointment of auditors, re-election of

directors, confirmation of appointed director as per articles of association.138

Considering the importance of annual general meeting to shareholders it has

134 The Companies Act, s 133(2)

135 Ibid, s 133(3)
136 Ibid, ss 133(4), (5)
137 Ibid, s 135
138 Ibid

121
been held that the directors must call the meeting even though the accounts are

not ready or the company is not functioning.

c) Extraordinary Meeting

Extraordinary meeting is a general meeting which is held between two Annual

General Meetings. Extraordinary General Meeting is Called to discuss any

particular matter of urgent importance to the company. This meeting is called for

the consideration of any specific subject, decision of which cannot be postponed

to the next Annual General Meeting.

The Extraordinary General Meeting may be called by the Directors or may be

convened by the Shareholders if the Board of Directors does not arrange for it

despite their requisition to call it.139 Directors may call the Extraordinary General

Meeting in accordance with the procedure laid down in the Articles of

Association of the company.

Shareholders holding at least one-tenth of the paid-up share capital of the

company can make a requisition to the Board of Directors to convince such a

meeting. Members of the company representing not less than one-tenth of the

total voting rights of all the members having at the said date a right to vote at

general meetings of the company.140

139 The Companies Act, s 134(1)

140 Ibid, s 134(2)
122
The requisition must state the objects of the meeting, and must be signed by the

requisitionists and deposited at the registered office of the company, and may

consist of several documents in like form each signed by one or more

requisitionists.141

d) Class Meeting

When the meeting of a particular class of shareholders takes place such as

preference shareholder meeting, it is known as class meeting. Such a meeting

can be attended only by that class of shareholders.

The articles define the procedure for calling such meeting. Such a meeting is

called for the alteration in the rights and privileges of the shareholders and for the

purpose of conversion of one class of shares into another.

(II) Directors Meetings

The directors of a company exercise most of their powers in a joint meeting called

the meeting of the Board. There must be a proper quorum for every meeting.

No three months should pass without directors’ meeting being held, and no year

should expire without at least four directors’ meetings having been held in it. The

object is to ensure directors meetings are held at reasonably frequent intervals so

141 The Companies Act, s 133(4)

123
that the directors may be in touch with the management of the affairs of the

company.

Notice must be given to a director, even if he has stated that he will be unable to

attend the meeting. The notice should mention the place, time and date of the

meeting. The day must be a working day and the time should be during business

hours unless agreed otherwise by all the directors. It is not necessary to state in the

notice the business to be transacted, unless the articles of the company or the

Act so require.

7.13 Company’s Resolutions

A resolution is a formal way in which a company can note decisions that are

made at a meeting of company members. Most of the decisions that affect a

company need to be made by a resolution. Additionally, a company's

constitution may have its own rules about what decisions need to be made by

resolution.

In order to make certain decisions, company directors or shareholders need to

pass resolutions. These can be made at general meetings or board meetings

(ordinary and special resolutions) or sometimes in writing (written resolutions).

Passing Company’s Resolution

For a resolution to pass, it must meet the following criteria:

124
 • the resolution is passed at a meeting which is properly convened and

satisfied any quorum (minimum number of members are present)

requirements

• the resolution is put into the company's records within one month of the

meeting being held, and

• the minutes of the meeting where the resolution was passed must be

signed by the chair of the meeting, or the chair of the following meeting.

• The chair must also sign the meeting’s minutes. The company’s minute

book must be kept at the company’s registered office, principal place of

business

If these criteria aren't met, the resolution could be considered as invalid. If a

company fails to follow these general requirements, the outcome of the resolution

may be invalidated.

Types of Company’s Resolution

There are two types of resolutions. These are ordinary and special resolutions.

Ordinary Resolution

The majority of resolutions used for routine changes, which simply need a majority

of shareholders or directors to agree or disagree on a decision, are known as

125
'ordinary resolutions'. This type of resolution can be passed with a show of hands

at a meeting.

Ordinary resolutions passed by a majority are required for any of the following

corporate actions:

• Issuing shares at a discount.

• Increase in the share capital of the company.

• Removal of a director before the expiry of his term.

• Removal of the auditor from office.

• Fixing a director's service contract to a term of more than three years.

• Determining the remuneration and expenses of the directors.

• Appointing an additional director.

• Authorizing a member to inspect accounting records or documents of the

company.

• Declaration of dividends in accordance with the respective rights of the

members.

Special Resolution

126
A resolution shall be a special resolution when it has been passed by a majority of

not less than three-fourths of such members as, being entitled so to do, vote in

person or, where proxies are allowed, by proxy, at a general meeting of which

notice specifying the intention to propose the resolution as a special resolution

has been duly given.142

Special resolutions passed by a majority of at least 75% of the members that are

entitled to vote at a general meeting are required for:

• Alteration of the company's memorandum.

• Alteration of the articles of association.

• Alteration of any condition in the memorandum which could be contained

in the articles of association.

• Change to the name of the company.

• Reservation of any portion of uncalled share capital to ensure it is only called

up on a specific event.

• Reduction in share capital.

• Declaration that the company's affairs must be investigated by a court-

appointed inspector.

142 The Companies Act, s 143(1)

127
 • Voluntary winding up of the company.

• Authorising a liquidation to receive shares, policies or other interest, in

consideration for the sale of property of a company that is being voluntarily

wound up.

• An arrangement between the company undergoing winding up

proceedings and its creditors.

7.14 Financial Reporting

A company must present to a general meeting of the company, copies of its

financial reports in respect of each accounting period. The reports must be

produced at the meeting and delivered to BRELA within ten months of the end of

the accounting period.

For a foreign company, the reports must be delivered to BRELA within three

months after the date on which the reports are made. Every overseas company

that establishes a branch in Tanzania must submit accounts in such form, contain

such particulars and together with such other required documents, as if the

branch were a company incorporated under the Companies Act. The branch's

balance sheet, profit and loss account and cash flow statement, must comply

with the requirements prescribed by the National Board of Accountants and

Auditors, taking into account generally accepted principles of accounting.

128
A dormant company, that is, a company no longer trading, is still required to

deliver its financial annual accounts to BRELA

7.15 Taxation of Company

Corporation tax is payable for each year of income on, among other things,

chargeable income for the year of income, by a corporation or foreign branch.

A business with a taxable turnover exceeding TZS100 million or which has reason

to believe that its turnover will exceed or is likely to exceed this threshold amount,

must register for VAT.

Any company that employs more than four people must pay SDL. The current rate

is 6% of the total amount paid to all its employees each month. A portion of the

levy goes to the Vocational Education and Training Authority to provide

vocational skills to Tanzanians.

A business that makes a payment to an employee is required to withhold PAYE

tax from the employee's chargeable income, at the rate specified in the Income

Tax Act. The business must provide returns to the Tanzania Revenue Authority

(TRA), setting out its payroll and the tax that is to be withheld, and must submit the

return within seven days after the month in which the tax was deducted.

129
A corporation is liable to tax if it is incorporated in Tanzania, and at any time during

the year of income, the management and control of its affairs are exercised in

Tanzania.

A non-tax resident business is liable to pay tax in Tanzania if its business income or

investment has a source in Tanzania. The business is also liable to tax if it is a

permanent establishment of a non-resident company situated in Tanzania. The

tax liability of the tax non-resident business is calculated as if the business and the

permanent establishment are independent but associated persons, and the

permanent establishment is resident in Tanzania.

7.16 Annual Returns

Annual return is the return an investment provides over a period of time, expressed

as a time-weighted annual percentage. Sources of returns can include dividends,

returns of capital and capital appreciation.

This refers to yearly statement which gives essential information about a

company’s composition, activities, and financial position, and which must be filed

by every active incorporated or registered firm with an appropriate authority.

Every company shall deliver to the Registrar, successive annual returns each of

which is made up to a date not later than the return date.143 If a company fails to

143 The Companies Act, s 128 (1)

130
deliver an annual return within twenty-eight days of the return date, the company

and every officer of the company who is in default shall be liable to a fine and, in

the case of a continued failure to deliver an annual return, to a default fine.144

Every annual return shall state the date to which it is made up and shall contain

address of the company’s registered office, type of company, name and address

of the company’s secretary, name and address of director, place where register

of members is kept and register of debenture holder.145

7.17 Accounts

Every company shall keep in English or Swahili proper books of accounts which

are sufficient to show and explain the company's transactions.146 The purpose of

these accounts is to report the financial activity of the company and work out

how much corporation tax it has to pay.

The books of account shall be kept at the registered office of the company or at

such other place in Tanzania as the directors think fit, and shall at all times be

open to inspection by the directors.147

The directors of every company shall prepare individual accounts for each

accounting period and lay before the company in general meeting. 148 The

144 The Companies Act, s 128 (3)

145 Ibid, s 129
146 Ibid, s 151(1)
147 Ibid, s 151(3)
148 Ibid, s 153

131
directors shall as well as preparing individual accounts for the accounting period,

prepare group accounts, which shall be laid before the company in general

meeting when the parent company's individual accounts are so laid.149

The balance sheet shall give a true and fair view of the state of affairs of the

company as at the end of its accounting period, the profit and loss account of a

company shall give a true and fair view of the profit or loss of the company for

the accounting period, and the cash flow statement of the company shall give a

true and fair view of the sources and uses of funds during the accounting

period.150

7.18 Unfair prejudice and derivative actions

Minority shareholders can seek court intervention if they believe that they are

unfairly prejudiced or the company is not properly managed. These are governed

by sections 233 and 234 of the Companies Act.151

This can also institute derivative actions, that is, the right of a person to apply to

the court to prosecute, defend or bring an action in the name of and on behalf

of the company or any of its subsidiaries.

149 The Companies Act, s 155(1)

150 Ibid, s 154(1)
151 Cap 212 RE 2002

132
The articles of association and any shareholder’s agreement can give additional

protection to minority shareholders.

7.19 Summary

In this chapter you have learnt the management and administration of a

company as vital aspect towards vitality of the company. The directors of a

company have all the powers necessary for managing, and for directing and

supervising the management of, the business and affairs of a company. The

source of powers of the directors of a company are the Companies Act, by the

memorandum and articles of association and by a special resolution, required to

be exercised by the company in general meeting. You have learnt about

company’s meetings, resolutions, annual returns, taxation and protection of

minority shareholders.

7.20 Activity

What do you understand by the term company’s management? Describe the

relevance of company’s management.

7.21 Review Questions

1. Who is director of a company? Explain the powers and duties of company’s

director.

2. Discuss nature, types and essence of company’s meetings

133
 3. What is resolution of a company? What are necessary conditions for

passing company’s resolution?

4. Explain the concept of annual returns. What are necessary requirements of

preparing annual returns of a company

5. Describe how the company is taxed.

7.22 References

Dignam, A and Lowry, J, Company Law, Oxford University Press, 2006

Garner, B. A, (ed.), Black's Law Dictionary, Second Pocket Edition, West Inc. 2001

Garnsey, P, the Roman Empire: Economy, Society, and Culture, University of

California Press, 1987, at pages 27-

Martin, E. A, (ed.), A Dictionary of Law, 5th Edition, Oxford University Press, United

Kingdom, 2003, at page 98

Micklethwait, J and Wooldridge, A, The company: A short history of a

revolutionary idea, Modern Library, 2003, Chapter 3

Osborn, P. G, Concise Law Dictionary for Students and Practitioners, Sweet and

Maxwell Limited, Great Britain, 1927, at page 67

134
 CHAPTER 08

WINDING UP OF COMPANIES

8.0 Introduction

Companies are given life by the statutes of their state of domicile, and when the

company no longer serves a purpose, that life must be terminated in accordance

with those statutes. A company may reach to an end through the legal process.

This process is called winding up of a company. It deals with ending business

affairs of a company. This chapter gives you understanding on the concept,

nature, modes and legal implications of winding up of companies.

8.1 Objectives

This chapter generally intends to impart a general understanding of the concept

of winding up of a company. Hence, by the end of this chapter, you should be

able to: -

 Define and explain the concept of winding up of a company;

 Describe the nature of winding up of a company;

 Distinguish between winding up of a company and dissolution of a

company; and
135
  Discuss the legal implications of winding up of a company.

8.2 Winding up

Winding up of a company implies concluding the affairs of a company that is

being liquidated, including paying off debts and distributing the remaining

assets.152 It is the process of liquidation of assets of a company, settling accounts,

paying debts and liabilities, distributing remaining assets to shareholders, and then

dissolving the business.

Winding up is a procedure by which a company can be dissolved. It may be

instigated by members or creditors of the company or by order of the court. In

both cases the process involves the appointment of a liquidator to assume control

of the company from its directors. He collects the assets, pays debts, and

distributes any surplus to company members in accordance with their rights.153

Generally, winding up involves the operation of stopping the business of a

company, realising the assets and discharging the liabilities of the concern,

settling any questions of account or contribution between the members, and

dividing the surplus assets (if any) among the members.

152 Blackwell, A. H, The Essential Law Dictionary, Sphinx Publishing, Naperville, at page 540
153 Martin, A. A, A Dictionary of Law, Oxford University Press, United Kingdom, at page 537
136
The overall purpose of a winding up is to allow for an orderly winding down of a

company, the realisation of its assets, the distribution of its assets to any creditors

and any excess to be returned to the shareholders.154

8.3 Nature of Winding up

Winding up is a process, not an event. When a company announces that it will

dissolve and end its legal existence, it is only the beginning of the end.

Company law governs the winding up process for companies, based on the need

to insure that creditors, stockholders, and other interested parties receive a fair

accounting of the liquidation and distribution of the business assets.

Once winding up process of a company is done according to the principles and

procedures enshrined in the company law, the company may wind up and

distribute the remaining assets.

Winding up is in the nature of a class remedy. Once started it has the effect of

protecting the rights of all the creditors, and in the case of unsecured creditors,

to share what is received on the basis of their debt in proportion to the overall

debt of the debtor.

154Lexis, Compulsory and Voluntary Winding Up of a Company, published at

https://www.lexisnexis.com/ap/pg/malaysiadisputeresolution/document/428627/5MVX-MNM1-
DXVF-T072-00000-00/Compulsory_and_voluntary_winding_up_overview. (accessed on 12th
September 2018)
137
 8.4 Methods of Winding Up of a Company

The winding up process can be divided into two methods: voluntary winding up

and compulsory winding up. The voluntary winding up process does not involve

the court process and is largely initiated by the shareholders. The compulsory

winding up process will require the court to order the winding up of the company.

(i) Compulsory Winding Up

It is a procedure for the winding up of a company involving a petition presented

to the court. The petition is usually by a creditor. The petition must be based on

one of the grounds specified in the Companies Act. The most usual ground is that

the company is unable to pay its debts.

It happens when court orders, force a company to appoint a liquidator who sells

assets and distributes the proceeds to creditors. A company's creditors will often

trigger the process. It ends with the company's removal from the companies

register i.e. effectively ceasing to exist.

(ii) Voluntary Winding Up

It is the winding-up procedure initiated by a special or extraordinary resolution of

the company.155 It can be either members’ voluntary winding up and creditors’

winding up.

155 Martin, A. A, A Dictionary of Law, Oxford University Press, United Kingdom, at page 530
138
In a members' voluntary winding-up, the directors must make a statutory

declaration of solvency within the prescribed time preceding the resolution. This

declaration states that the directors have investigated the affairs of the company

and are of the opinion that the company will be able to pay its debts in full within

a specified period, not exceeding 12 months from the date of the resolution. The

liquidator is appointed by the company members.156

A creditors' voluntary winding-up arises when no declaration of solvency has

been made or when the liquidator in a members' voluntary winding-up disagrees

with the forecast made by the directors. In these circumstances the company

must hold a meeting of its creditors and lay before it a statement of affairs

disclosing its assets and liabilities. A liquidator may be nominated by the company

and by the creditors; the creditors' nominee is preferred unless the court orders

otherwise. If the company nominee acts as liquidator prior to the creditors'

meeting he can only exercise his powers with the consent of the court.157

8.5 Reasons for Winding up Companies

Companies are wound up for many reasons, including bankruptcy or insolvency,

the cessation of the business of the company, the sale of all or substantially all of

the assets of the company, or the death of key shareholders, directors, or officers.

156 Martin, A. A, op-cit

157 Ibid
139
 8.6 Dissolution vis-à-vis Winding up of a Company

The entire procedure for bringing about a lawful end to the life of a company is

divided into two stages ‘winding up’ and ‘dissolution. Dissolution and winding up,

as well as other aspects of closing a business, often require the assistance of a

legal professional.

The term "dissolution" refers to the systemic closing down of a business entity, while

"winding up" refers to the selling of assets and payment of debts prior to closing a

business.

Winding up is the first stage in the process whereby assets are released, liabilities

are paid off and the surplus, if any distributed among its members. Dissolution is

the final stage whereby the existence of the company is withdrawn by the law.158

The dissolution brings to an end the company’s legal personality while winding up

brings existence of a company to an end.

The dissolution of a company culminates in the wind up of all legal and financial

affairs of the business. While winding up is the process in which accounts are

settled and assets are liquidated so that they may be distributed and the business

may be terminated.

158 The Companies Act, ss 345 and 355

140
Winding up in all cases does not culminate in dissolution. Even after paying all the

creditors there may still be a surplus, company may earn profits during the course

of beneficial winding up, there may be a scheme of compromise with creditors

while company is in winding up and in all such events the company will in all

probability come out of winding up and hand over back to shareholders/ old

management. Dissolution is an act which puts an end to the life of the company.

As such winding up is only a process while the dissolution puts an end to the

existence of the company.

Therefore, the dissolution of a company is recorded and registered by the

Registrar of Companies. The process of dissolution is purely administrative function.

The liquidator does have any important role in the dissolution. The dissolution must

take place after winding up.

On the other hand, the winding up of a company is heard and judged by the

court. The process of winding up is purely judicial function. The Liquidator has

important role in the winding up. After winding up, dissolution takes place.

8.7 Insolvency

The key point in determining whether an entity is insolvent or not, is whether that

entity can pay its debts as and when they are due. This is determined by the dates

that your debts are due for payment according to the terms imposed upon you

by your various contracts.

141
This means that not all debts will be due at once. It is important to assess whether

at the relevant time you are able to meet the obligations that are actually due or

not.

A company will be deemed to be insolvent when it is unable to pay its debts as

they fall due. In such circumstances the company may be put into liquidation

whereby its assets are collected and sold with the proceeds applied to

discharging its debts.

This may be done either at the instigation of the company members, or by the

creditors of the company by way of application to the High Court.

A company shall be deemed to be unable to pay its debts159 –

(a) if a creditor, by assignment or otherwise, to whom the company is

indebted in a sum exceeding fifty thousand shillings or such other amount

as may from time to time be prescribed in regulations made by the

Minister, then due has served on the company, by leaving at the

registered office of the company, a written demand requiring the

company to pay the sum so due and the company has for twenty-one

days thereafter neglected to pay the sum or to secure or compound for it

to the reasonable satisfaction of the creditor; or

159 The Companies Act, s 280

142
 (b) if execution or other process issued on a judgment, decree or order of any

court in favour of a creditor of the company is returned unsatisfied in whole

or in part; or

(c) if it is proved to the satisfaction of the court that the company is unable to

pay its debts as they fall due; or

(d) if it is proved to the satisfaction of the court that the value of the

company's assets is less than the amount of its liabilities, taking into

account the contingent and prospective liabilities of the company.

8.8 Implications of Winding Up of a Company

The company shall from the commencement of the winding up cease to carry

on its business except as far as required for the beneficial winding up of its

business.160 The corporate state and corporate powers of the company shall

continue until it is dissolved.

In addition, winding up of a company shall operate in favour of all the creditors

and all contributories of the company as if it had been made out or the joint

petition of creditors and contributories.161

160 The Companies Act, s 336

161 Ibid, s 289
143
The winding up decision shall be deemed to be notice of discharge to the officers

and employees of the company except when the business of the company is

continued.

The powers of the board of directors will terminate and these will vest in the official

liquidator, who shall by virtue of his office become the liquidator of the company.

No suit or other legal proceedings shall be commenced, or if pending at the date

of the winding up decision, shall be proceeded with, against the company,

except by leave of the court and subject to such terms as the court may

impose.162

8.9 Summary

You have learnt the concept, nature and implications of winding up of a

company in this chapter. You are aware at the moment that winding up of a

company is the process of settling accounts and liquidating assets in anticipation

of partnership or corporation’s dissolution. In a winding up procedure, the assets

of the company are used to settle the liabilities of the creditors and its members

prior to dissolution of the company. In addition, companies are wound up for

many reasons, including bankruptcy or insolvency, the cessation of the business

of the company, the sale of all or substantially all of the assets of the company,

or the death of key shareholders, directors, or officers. Moreover, winding up is the

162 The Companies Act, s 288

144
first stage in the process whereby assets are released, liabilities are paid off and

the surplus, if any distributed among its members. Dissolution is the final stage

whereby the existence of the company is withdrawn by the law. Furthermore,

winding up of a company shall operate in favour of all the creditors and all

contributories of the company as if it had been made out or the joint petition of

creditors and contributories.

8.10 Activity

Discuss the important differences between winding up of a company and

dissolution of a company.

8.11 Review Questions

1. What do you understand by the term winding up of a company? Explain its

relevance.

2. In what ways the winding up of a company different from the dissolution of

a company?

3. What are methods of winding up of winding up of a company? Describe

each method.

4. Discuss the reasons and circumstances which may lead to winding up of a

company.

145
 5. Evaluate the legal implications associated with the winding up of a

company.

6. Discuss the nature of winding up of a company.

8.12 References

Blackwell, A. H, The Essential Law Dictionary, Sphinx Publishing, Naperville, (2008)

Martin, A. A, A Dictionary of Law, Oxford University Press, United Kingdom, (2003)

146
 CHAPTER 09

VOLUNTARY WINDING UP OF COMPANIES

9.0 Introduction

Voluntary winding up allows for a members’ voluntary winding up where a

company is solvent and creditors’ where the company is not solvent. With the

company able to pay its debts, the members’ voluntary winding up process

allows for the realised assets to be returned to the shareholders in order for them

to realise their investment in the company. This chapter shades knowledge and

understanding on the concept, nature, circumstances, types and procedures of

voluntary winding up of a company.

9.1 Objectives

This chapter generally gives overview of the voluntary winding up of a company.

By the end of this chapter, you should be able to: -

 Define and explain the concept of voluntary winding up of a company;

 Describe types of voluntary winding up of a company;

 Identify and explain circumstances that lead to the voluntary winding up

of a company;
147
  Sort out and discuss the procedures of members’ voluntary winding up of a

company and creditors’ winding up of a company; and

 Mention and describe the legal effects of the voluntary winding up of a

company.

9.2 Voluntary Winding Up of a Company

It is the winding-up procedure initiated by a special or extraordinary resolution of

the company.163 It can be either members’ voluntary winding up and creditors’

winding up.

It allows for a members’ voluntary winding up where a company is solvent. With

the company able to pay its debts, the members’ voluntary winding up process

allows for the realised assets to be returned to the shareholders in order for them

to realise their investment in the company.164

Voluntary winding up is a simple, cost effective and expeditious exercise

compared to compulsory winding up which involves court intervention. Court

process is often complex, expensive and time consuming.165

163 Martin, A. A, A Dictionary of Law, Oxford University Press, United Kingdom, at page 530
164 Lexis, Compulsory and Voluntary Winding Up of a Company, published at
https://www.lexisnexis.com/ap/pg/malaysiadisputeresolution/document/428627/5MVX-MNM1-
DXVF-T072-00000-00/Compulsory_and_voluntary_winding_up_overview. (accessed on 12th
September 2018)
165 ABC Attorneys, Voluntary Winding Up of a Company in Tanzania, published at

https://www.abcattorneys.co.tz/voluntary-winding-company-tanzania/. (accessed 12th

September 2018)
148
 9.3 Circumstances for Voluntary Winding Up

(i) Expiration of Fixed Period

Expiration of the period fixed by the articles or occurrence of the event which the

articles provide for expiration upon its occurrence followed by a resolution for

voluntary winding up.166

(ii) Special Resolution

Passing of a resolution that the company be wound up voluntarily. Passing of a

special resolution to the effect that the company, by reason of its liabilities,

cannot continue its business and that it is advisable to wind it up.167

A resolution to wind up the company has to be published in the Gazette and also

in some newspaper circulating in Tanzania within 14 days from the date of its

being passed by the Company.168

(iii) Declaration of Solvency

This refers to a declaration by the directors that they have made a full inquiry into

the affairs of the company and they have formed an opinion that the company

166 The Companies Act, s 333 (1) (a)

167 Ibid, s 333(1) (b)
168 Ibid, s 334(1)

149
is able to pay its debts in full within the prescribed period not exceeding twelve

months from the commencement of the winding up.169

A valid declaration of solvency must comply with the following:170

a) It has to be made within 30 days immediately preceding the date of

passing of the resolution to wind up the company and is delivered to the

Registrar for registration before that date.

b) It has to contain a statement of the company’s assets and liabilities as at

the latest practicable date before the making of the declaration.

9.4 Commencement of Voluntary Winding Up

Time for voluntary winding up commences immediately after passing of the

resolution for voluntary winding up by the company.171

(i) Members’ Voluntary Winding Up

In a members' voluntary winding-up, the directors must make a statutory

declaration of solvency within the prescribed time preceding the resolution. This

declaration states that the directors have investigated the affairs of the company

and are of the opinion that the company will be able to pay its debts in full within

169 The Companies Act, s 333(1)(c)

170 Ibid, s 338(2)
171 Ibid, s 335

150
a specified period, not exceeding 12 months from the date of the resolution. The

liquidator is appointed by the company members.172

a. When does occur?

This happens when the company is solvent and capable of paying its liabilities in

full but resolves to voluntarily wind up its business. Where the company is insolvent,

the directors can decide to no longer carry on the business due to the company’s

liabilities.

A declaration of solvency stating that the company is capable of paying its debts

in full on being wound up is mandatory for members’ voluntary winding up.

b. Procedures for Members’ Voluntary Winding Up

The declaration of solvency has to be registered with the Registrar before

convening a general meeting for voluntary winding up of the company.

Second, convene a general meeting within 30 days after passing of the resolution

to voluntarily wind up and declaration of solvency by the Board. And publish the

resolution for voluntary winding up in the Gazette or circulating newspaper within

14 days of its being passed.173

172 Martin, A. A, A Dictionary of Law, Oxford University Press, United Kingdom, at page 530
173 The Companies Act, s 340(1)
151
Third, appoint a liquidator at the general meeting for voluntary winding up of the

company.174 The Liquidator calls upon creditors of the company for settlement of

their claims against the company.

Fourth, the liquidator issues a notice for a general meeting at least 7 days before

specifying the time, place and purpose of the meeting. The notice has to be

published in the Gazette and a circulating newspaper in Tanzania. The purpose

of the meeting is for determination of an account of winding up report from the

liquidator.175

Fifth, the liquidator submits to the members an account of the winding up,

showing how the winding up has been conducted and disposal of the assets of

the company. The liquidator gives explanation of an account of winding up in

details to the members.176

Sixth, the liquidator, within 14 days after the general meeting, submits to the

Registrar a copy of an account for winding up and minutes of the meeting which

deliberated on the liquidator’s winding up report.177

174 The Companies Act, s 340(1)

175 Ibid, s 343(1)
176 Ibid, s 345(1)
177 Ibid, s 345(3)

152
Seventh, the Registrar on receiving the account and returns from the liquidator

on winding up; shall register them and on expiration of three months from

registration of the same, the company shall be deemed to be dissolved.178

(ii) Creditors’ Voluntary Winding Up

A creditors' voluntary winding-up arises when no declaration of solvency has

been made or when the liquidator in a members' voluntary winding-up disagrees

with the forecast made by the directors. In these circumstances the company

must hold a meeting of its creditors and lay before it a statement of affairs

disclosing its assets and liabilities. A liquidator may be nominated by the company

and by the creditors; the creditors' nominee is preferred unless the court orders

otherwise. If the company nominee acts as liquidator prior to the creditors'

meeting he can only exercise his powers with the consent of the court.179

a. When Does Creditors’ Voluntary Winding Up Occur

This happens in a situation where the company is not solvent and no declaration

of solvency is made and filed with the Registrar. A winding up in the case of which

a declaration of solvency has not been delivered to the registrar is known as

creditor’s voluntary winding up. The company calls a meeting of its creditors and

appoints a liquidator. When liquidation is complete, the liquidator calls the final

178 The Companies Act, s 345(4)

179 Ibid, s 354(4)
153
meeting of the company and the creditors and places before them the full

account.

b. Creditors’ Voluntary Winding Up Procedures

First, publish a notice for creditors’ meeting in the Gazette or a circulating

newspaper.180 Second, convene a creditors’ meeting for passing a resolution for

voluntary winding up.181

Third, the directors must draw up a full statement of the position of the company’s

affairs together with a list of the creditors of the company and estimated amount

of their claims to be laid before the meeting of the creditors and appoint one of

the directors to preside over the meeting.182

Fourth, the creditors and the company at their respective meetings may

nominate a person to be a liquidator for the purposes of winding up the affairs

and distributing the assets of the company, and if the creditors and the company

nominate different persons, the person nominated by the creditors shall be the

liquidator, and if no person is nominated by the creditors the person, if any,

nominated by the company shall be the liquidator.183

180 The Companies Act, s 348(2)

181 Ibid, s 348(1)
182 Ibid, s 348(3)
183 Ibid, s 349(1)

154
Fifth, the creditors at the creditors’ meeting may, if they think fit, appoint more

than five persons to be members of a committee of inspection, and if such

committee is appointed, the company may (with the creditors’ approval) such

number of persons as they think fit to act as members of the committee. However,

the majority of the members shall be persons appointed by the creditors.184

Sixth, in the event of the winding up continuing for more than one year, the

liquidator must summon a general meeting of the company and a meeting of

the creditors at the end of the first year from the commencement of the winding

up, and of each succeeding year, or at the first convenient date within three

months from the end of the year or such longer period as the Registrar may allow,

and shall lay before the meetings an account of his acts and dealings of the

conduct of the winding up during the preceding year.185

Seventh, as soon as the affairs of the company are fully wound up, the liquidator

must make an account of the winding up, showing how the winding up has been

conducted and the property of the company has been disposed of, and

thereupon shall call a general meeting of the company and a meeting of the

creditors for the purpose of laying the account before the meetings and giving

any explanation thereof.186

184 The Companies Act, s 350(1)

185 Ibid, s 354(1)
186 Ibid, s 355(1)

155
Eighth, within 14 days after the date of the meetings, or, if the meetings are not

held on the same date, after the date of the later meeting, the liquidator shall

deliver to the Registrar a copy of the account, and shall make return to him of the

holding of the meetings and of their dates.187

Ninth, the Registrar on receiving the account and, in respect of each such

meeting, the returns, must immediately register them, and on the expiration of

three months from registration thereof the company shall be deemed to be

dissolved.188

9.5 Powers of the Court in Voluntary Winding Up

The courts have power to intervene and supervise the voluntary winding up of a

company. However, these powers are limited to: -

(i) It may appoint liquidator where the appointed liquidator is not acting.189

(ii) It may remove the liquidator and appoint another liquidator on

justifiable cause being shown.190

(iii) It may determine any question arising in the winding up of a company

and it may exercise, as respects the enforcing of calls, the staying of suits

or other legal proceedings or any other matter, or any of the powers

187 The Companies Act, s 355(3)

188 Ibid, s 355(4)
189 Ibid, s 359(1)
190 Ibid, s 359(2)

156
 which the Court might exercise if the company were being wound up

by the Court.191

9.6 Effects of Voluntary Winding Up of a Company

Company ceases to carry on its business except so for as may be required for the

beneficial winding up thereof since commencement of the winding up.192

Board of Director’s power ceases on appointment of a liquidator in case of

members’ voluntary winding up.193 This means that on the appointment of a

liquidator all the powers of the directors shall cease, except so far as the company

in general meeting or the liquidator sanctions the continuance thereof.

9.7 Summary

In this chapter, you have learnt a concept, nature, circumstances, types,

procedures, effects of voluntary winding up as well as powers of the court in the

supervision of the voluntary winding up of a company. It is the winding-up

procedure initiated by a special or extraordinary resolution of the company. It

can be either members’ voluntary winding up and creditors’ winding up.

191 The Companies Act, s 362(1)

192 Ibid, s 336
193 Ibid, s 340(2)

157
 9.8 Activity

Creditors of Upendo Limited Company wants to wind up the company because

they foresee the possible future for the company to fail to run its business properly

which may make them unable to redeem their money from the company. They

come to seek legal advice on what it takes for creditors to wind up the company

and on how to go about the process of winding up of the company. Advise them

accordingly.

9.9 Review Questions

1. What is voluntary winding up of a company? explain the nature and

essence of voluntary winding up of a company.

2. Under which circumstances voluntary winding up of a company can take

place?

3. Describe the types of voluntary winding up of a company.

4. What are the procedures for undertaking members’ voluntary winding up

of a company?

5. Discuss the procedures for pursuing the creditors’ voluntary winding up of a

company.

158
 6. “The courts have power to intervene and supervise the voluntary winding

up of a company.” substantiate the statement in relation to the powers of

the court on voluntary winding of a company.

7. Discuss the legal effects of voluntary winding up of a company.

9.10 References

ABC Attorneys, Voluntary Winding Up of a Company in Tanzania, published at

https://www.abcattorneys.co.tz/voluntary-winding-company-tanzania/.

(accessed 12th September 2018)

Martin, A. A, A Dictionary of Law, Oxford University Press, United Kingdom, (2003)

Lexis, Compulsory and Voluntary Winding Up of a Company, published at

https://www.lexisnexis.com/ap/pg/malaysiadisputeresolution/document/428627

/5MVX-MNM1-DXVF-T072-00000

00/Compulsory_and_voluntary_winding_up_overview. (accessed on 12th

September 2018)

159
 CHAPTER 10

COMPULSORY WINDING UP OF COMPANIES

10.0 Introduction

Compulsory winding up of a company occurs when court orders, force a

company to appoint a liquidator who sells assets and distributes the proceeds to

creditors. A company's creditors will often trigger the process. It ends with the

company's removal from the companies register i.e. effectively ceasing to exist.

This chapter covers concept, nature, circumstances, procedures and effects of

compulsory winding up of the companies.

10.1 Objectives

This chapter intends to equip you with general understanding of the compulsory

winding up of a company. At the end of this chapter, you should be able to: -

 Define and explain the concept of compulsory winding up of a company;

 Identify and describe the circumstances that lead to compulsory winding

up of a company;

 Describe the jurisdiction of courts as far as compulsory winding up of a

company in Tanzania is concerned;

160
  Explain the commencement of the compulsory winding up of a company;

 Discuss the procedures for the compulsory winding up of a company in

Tanzania;

 Mention and illustrate the powers of the liquidators in the winding up of a

company;

 Describe the exercise and control mechanisms of the powers of the

liquidators as far as compulsory winding up of a company is concerned;

and

 Demonstrate the consequences of the winding up order relation to the

winding up of a company.

10.2 Compulsory Winding Up of a Company

It is a procedure by which the assets of a company are sold and the proceeds

are distributed to the company’s creditors by the court order.194 It involves a

petition presented to the court. The petition must be based on one of the grounds

specified in the Companies Act. A court order is required to put a company into

compulsory winding up.

194 Martin, A. A, A Dictionary of Law, Oxford University Press, United Kingdom, at page 530
161
The petition is made by the creditors. However, the company itself, its directors

and various other categories of people can seek to have a company put into

compulsory liquidation.

It is a court-based procedure under which the assets of a company are realised

and distributed to the company's creditors. The procedure is started by the filing

of a petition at court. A judge then decides at a court hearing whether it is

appropriate to make a winding up order. As indicated, the most common ground

for winding up a company is it is unable to pay its debts.

10.3 Circumstances of Compulsory Winding Up

The High Court of Tanzania has power to wind up any company registered in

Tanzania on any of the following grounds195: -

i) The company, by special resolution resolves to be wound up by court

ii) The company defaults holding a statutory meeting, or filling a

statutory return.

iii) The number of shareholders falls below the number prescribed as

minimum in the company law (two and seven for private and public

company respectively)

195 The Companies Act, s 279

162
iv) The company is unable to pay its debts in any of the following

circumstances: -

 Where a creditor for more than TShs. 1,000/= serves on the

company a demand to pay and the company fails, within three

weeks thereof, to pay, or to secure or to compound the sum.

 Where an execution or other legal process of a court is returned

unsatisfied

 It is proved to the satisfaction of the court that the company is

unable to pay its debts, taking into account for this purpose any

contingent and prospective liabilities.

v) The company fails to commence business within a year of its

incorporation or suspends its business for a whole year.

vi) For any other reason the court considers it just and equitable that the

company should be wound up (e.g. where there is a deadlock in

management, where the business carried on by the company was

illegal, personal antagonism between two directors who were the

only directors etc.)

163
 10.4 Jurisdiction to wind up Registered Companies in Tanzania

The High Court shall have jurisdiction to wind up any company registered in

Tanzania and a body corporate.196

The District or Resident Magistrate Court shall have original jurisdiction to wind-up

a single shareholder company registered in Tanzania and a body corporate.197

10.5 Commencement of Compulsory Winding up of a Company

As general rule, the winding up of a company by the court shall be deemed to

commence at the time of the presentation of the petition for the winding-up.198

On the other hand, the winding up of the company shall be deemed to have

commenced at the time of the passing of the resolution where a resolution has

been passed by the company for voluntary winding up. 199

This occurs before the presentation of a petition for the winding up of a company

by the court. However, the court may stipulate otherwise on proof of fraud or

mistake.200

196 The Companies Act, s 275 (1) as amended by The Business Laws (Miscellaneous Amendments)
Act, Act No. 3 of 2012
197 Ibid, s 275(2) as amended by The Business Laws (Miscellaneous Amendments) Act, Act No. 3

of 2012
198 The Companies Act, s 287(2)
199 Ibid, s 286(1)
200 Ibid, s 281(1)

164
 10.6 Procedures for Compulsory Winding Up of a Company

(i) Application for the Winding Up

An application to the court for the winding up of a company shall be by petition

presented.201 Such application to the court for the winding up of a company may

be made by the company or by any creditor or creditors202, contributory or

contributories, or by an administrator, or by all or any of those parties, together or

separately.203

A winding-up petition may be presented by the official receiver as well as by any

other person authorised in that behalf where a company is being wound up

voluntarily or subject to supervision.204

Nevertheless, the court shall not make a winding up order on the petition unless it

is satisfied that the voluntary winding up or winding up subject to supervision

cannot be continued with due regard to the interests of the creditors or

contributories.205

(ii) Hearing of Petition

201 The Companies Act, s 281(1)

202 Including any contingent or prospective creditor or creditors
203 The Companies Act, s 281(1)
204 Ibid, s 281(2)
205 The Companies Act, Cap 212 RE 2002

165
The court may dismiss on hearing a winding-up petition, or adjourn the hearing

conditionally or unconditionally, or make any interim order, or, any other order

that it thinks fit.206

(iii) Winding Up Order

The court shall make a winding-up order where the petition is presented by

members of the company as contributories on the ground that it is just and

equitable that the company should be wound up.207

The court shall make the winding up order if it is of the opinion that that the

petitioners are entitled to relief either by winding up the company or by some

other means and that in the absence of any other remedy it would be just and

equitable that the company should be wound up.208

The court shall not make such winding up order if it is also of the opinion both that

some other remedy is available to the petitioners and that they are acting

unreasonably in seeking to have the company wound up instead of pursuing that

other remedy.209

206 The Companies Act, s 282(1)

207 Ibid, s 282(2)
208 Ibid, s 282(2)
209 Ibid, s 282(2)

166
Where any company is being wound up by the court, any attachment,

sequestration, distress or execution put in force against the assets of the company

after the commencement of the winding up shall be void.210

On the making of a winding up order, a copy of the order shall immediately be

forwarded by the company, or otherwise as may be prescribed, to the Registrar

for registration.211

(iv) Appointment of liquidator or official receiver

Official receiver means the official receiver attached to the court for bankruptcy

purposes.212 The court may appoint official receiver where it appears to the court

desirable, with a view to securing the more convenient and economical conduct

of the winding up.213

The court may appoint a liquidator (s) for the purpose of conducting the

proceedings in winding up a company and performing such duties in reference

thereto as the court may impose.214

210 The Companies Act, s 285

211 Ibid, s 287
212 Ibid, s 290
213 Ibid, s 291
214 Ibid, s 294

167
The court may appoint the official receiver to be the liquidator at any time after

the presentation of a winding up petition and before the making of a winding up

order.215 The court may limit and restrict his powers.216

(v) Statement of Affairs of the Company to official Receiver

This is a statement as to the affairs of the company in the prescribed form, verified

by affidavit, and showing the particulars of its assets and liabilities, the names,

addresses and occupations of its creditors, the securities held by them

respectively, the dates when the securities were respectively given, and such

further or other information as may be prescribed or as the official receiver may

require.217

The statement shall be submitted and verified by one or more of the persons who

are at the relevant date the directors and by the person who is at that date the

Secretary of the company, or by such of the persons hereinafter in this subsection

mentioned as the official receiver.218

The statement shall be submitted within twenty-one days from the relevant date

or within such extended time as the official receiver or the court may for special

reasons appoint.219

215 The Companies Act, s 295(1)

216 Ibid, s 295(2)
217 Ibid, s286(1)
218 Ibid, s 286(2)
219 Ibid, s 286(3)

168
 (vi) Liquidation

The liquidator shall take into his custody or under his control all the property and

things in action to which the company is or appears to be entitled. This shall take

place where a winding up order has been made or where an interim liquidator

has been appointed.220

The court may by order direct that all or any part of the property of whatsoever

description belonging to the company or held by trustees on its behalf shall vest

in the liquidator by his official name.221

Then, the property to which the order relates shall vest accordingly. This shall be

done on the application of the liquidator where a company is being wound up

by the court.222

The liquidator may bring or defend in his official name any action or other legal

proceeding which relates to that property or which it is necessary to bring or

defend for the purpose of effectually winding up the company and recovering

its property. This occurs after giving such indemnity, if there is any and if the court

may direct so.223

vi) Dissolution of the Company

220 The Companies Act, s 299

221 Ibid, s 300
222 Ibid
223 Ibid

169
The court will make an order that the company shall be dissolved accordingly,

and this order terminates the corporate existence of the company. This notice

shall be communicated by the liquidator, within 14 days, to the Registrar of

Companies.

10.7 Powers of Liquidators

The liquidator in a winding up by the court shall have power with the sanction

either of the court or of the committee of inspection224 –

a) to bring or defend any action or other legal proceeding in the name and

on behalf of the company;

b) to carry on the business of the company so far as may be necessary for the

beneficial winding up thereof,

c) to appoint an advocate to assist him in the performance of his duties;

d) to pay any classes of creditors in full;

e) to make any compromise, or arrangement with creditors, or persons

claiming to be creditors, or having or alleging themselves to have any

claim.

224 The Companies Act, s 301(1)

170
 f) to compromise all calls and liabilities to calls, debts and liabilities capable

of resulting in debts, and all claims

The liquidator in a winding up by the court shall have power without the express

sanction of the court225 -

a) to sell the movable and immovable property and things in action of the

company by public auction or private contract, with power to transfer the

whole thereof to any person or company or to sell the same in parcels;

b) to do all acts and to execute, in the name and on behalf of the company,

all deeds, receipts and other documents, and for that purpose to use, when

necessary, the company's seal;

c) to prove, rank and claim in the bankruptcy, insolvency or sequestration of

any contributory for any balance against his estate;

d) to receive dividends in the bankruptcy, insolvency or sequestration in

respect of that balance, as a separate debt due from the bankrupt or

insolvent, and rateably with the other separate creditors;

e) to draw, accept, make and endorse any bill of exchange or promissory

note in the name and on behalf of the company, with the same effect with

respect to the liability of the company as if the bill or note had been drawn,

225 The Companies Act, s 301(2)

171
 accepted, made or endorsed by or on behalf of the company in the

course of its business;

f) to raise on the security of the assets of the company any money requisite;

g) to take out in his official name letters of administration to any deceased

contributory; and

h) to do in his official name any other act necessary for obtaining payment of

any money due from a contributory or his estate which cannot be

conveniently done in the name of the company

10.8 Exercise and Control of Liquidators’ Powers

The liquidator of a company which is being wound up by the court shall have

regard to any directions that may be given by resolution of the creditors or

contributories at any general meeting or by the committee of inspection. 226

In addition, the liquidator shall have regards to any directions given by the

creditors or contributories at any general meeting shall in case of conflict be

deemed to override any directions given by the committee of inspection. 227

226 The Companies Act, s 302(1)

227 Ibid
172
This regard shall be made in the administration of the assets of the company and

in the distribution thereof among its creditors.228

The liquidator may summon general meetings of the creditors or contributories.

The general meeting shall be for the purpose of ascertaining their wishes.229

The liquidator is duty bound to summon meetings at such times as the creditors or

contributories, by resolution. This summon shall be either at the meeting

appointing the liquidator or whenever requested in writing to do so by one-tenth

in value of the creditors or contributories, as the case may be.230

The liquidator shall use his own discretion in the management of the estate and

its distribution among the creditors.231 However, may apply to the court in manner

prescribed for directions in relation to any particular matter arising under the

winding up.232

The official receiver shall take notice of the conduct of liquidators of companies

which are being wound up by the court. The official receiver shall inquire into the

matter and take such action thereon as he may think expedient.233

228 The Companies Act, s 302(1)

229 Ibid, s 302(2)
230 Ibid, s 302(2)
231 Ibid, s 302(4)
232 Ibid, s 302(3)
233 Ibid, s 306(1)

173
This shall be done if a liquidator does not faithfully perform his duties and duly

observe all the requirements imposed on him by statute, rules or otherwise with

respect to the performance of his duties or if any complaint is made to the official

receiver by any creditor or contributory in regard thereto.234

The official receiver may require any liquidator to answer any inquiry. The

liquidator must be of a company which is being wound up by the court. This may

be at any time. The inquiry has to be in relation to any winding up in which he is

engaged.235

The official receiver also may apply to the court to examine liquidator or any other

person on oath concerning the winding up. He or she shall apply only if the official

receiver thinks fit.236

Any person may apply to the court if aggrieved by any act or decision of the

liquidator. The court may confirm, reverse or modify the act or decision

complained of, and make such order in the premises as it thinks just.237

234 The Companies Act, s 306(1)

235 Ibid, s 306(2)
236 Ibid, s 306(2)
237 Ibid, s 302(5)

174
 10.9 Effects of Winding Up Order

No action or proceeding shall be proceeded with or commenced against the

company except by leave of up order the court and subject to such terms as the

court may impose.238

An order for winding up a company shall operate in favour of all the creditors and

of all the contributories of the company as if made on the joint petition of a

creditor and of a contributory.239

10.10 Summary

In this chapter, you have equipped yourself with understanding of the compulsory

winding up of a company. You are knowledgeable on the concept, jurisdiction,

circumstances procedures of compulsory winding up of a company.

10.11 Activity

The High Court of Tanzania has power to wind up any company registered in

Tanzania on various grounds. Describe those grounds with support of relevant

authorities.

238 The Companies Act, s 288

239 Ibid, s 289
175
 10.12 Review Questions

1. What is compulsory winding up of a company? Describe the features of the

compulsory winding up of a company.

2. Elucidate the circumstance which may lead to the compulsory winding up

of a company.

3. Discuss the procedures to pursue the compulsory wining up of a company.

4. When is the compulsory winding up of a company deemed to have

commenced?

5. Describe the powers of the liquidators in relation to compulsory winding up

of a company.

6. Which courts in Tanzania have jurisdiction to entertain cases related to

winding up of companies? Explain with legal authorities.

7. What are the consequences of the winding up order in relation to the

compulsory winding up of a company?

8. Are the powers of the liquidators in relation to compulsory winding up of a

company controllable? Substantiate with relevant authorities.

176
 10.13 References

ABC Attorneys, Voluntary Winding Up of a Company in Tanzania, published at

https://www.abcattorneys.co.tz/voluntary-winding-company-tanzania/.

(accessed 12th September 2018)

Martin, A. A, A Dictionary of Law, Oxford University Press, United Kingdom, (2003)

Lexis, Compulsory and Voluntary Winding Up of a Company, published at

https://www.lexisnexis.com/ap/pg/malaysiadisputeresolution/document/428627

/5MVX-MNM1-DXVF-T072-00000

00/Compulsory_and_voluntary_winding_up_overview. (accessed on 12th

September 2018)

177