CORPORATE LAW UPDATE: WHAT COMPANIES AND

THEIR MANAGEMENTS NEED TO KNOW REGARDING

CHANGES TO THE COMPANIES LAW IN TANZANIA
breakthroughattorneys.co.tz/changes-to-the-companies-law-in-tanzania/

August 6, 2019

Amendment of a definition of a Company

Mandatory conversion of a Companies Limited by Guarantee (CLGs) with no share
capital into Non-Governmental Organizations
Striking off of Companies limited by guarantee with no share capital off the
Companies Register with the Business Registration and Licensing Authority
(BRELA)
Extension of powers of the Registrar of Companies’ to strike off companies from the
register
Curtailing registration of companies without the word “Limited

1.0 Introduction

Following a publication of a Bill on Written Laws (Miscellaneous Amendments) (No.3),

2019 back in May, 2019 which amended a variety of laws including The Companies Act
no. 12 of 2002 and later an enactment of the Bill into an Act i.e. Written Laws
(Miscellaneous Amendments) (No.3) Act, 2019, there are amendments that have
affected operations of companies and future registration of certain type of companies in
the United Republic of Tanzania.

Our, Breakthrough Attorneys’ Corporate Secretarial department, through this Article

move to shed a light on the amendments done to the Companies Act and what will be the
resulting effects to existing companies and forthcoming ones. Moreover, the Article
discusses the much debatable and to many, inacceptable, extension of the Registrar’s
power to strike off companies

2.0 Discussion of the Amendments made to the Companies Act:

a) Amendment of a definition of a Company

Prior to the Written Laws (Miscellaneous Amendments) (No.3) Act, 2019, a Company
was defined simply as a company formed and registered under this Act or an existing
company. This definition what a company is has been amended to a more extensive
definition, which explains what will be considered as a company under the Companies
Act. Specifically, Section 4 of the Act now defines a company to mean a company formed
and registered under this Act (the Companies Act) or an existing company established for

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investment, trade or commercial activities and any other activity as the Minister may, by
notice published in the Gazette, prescribe. The Act further defines what commercial
activities, investment activities and trade entails. According to the Act, these activities
include the following;

all activities of industry and trade, including, but not limited to, the buying or selling
of commodities and activities conducted for the purpose of facilitating such buying
and selling;
transactions involving sale or purchase of equipment plants, properties, securities,
capital, stocks, debentures or other assets generally not held for immediate re-sale
and any other activity as the Minister may, by notice published in the Gazette,
prescribe
the transfer of goods or services from one person or entity to another.

This means that, companies whose activities fall under the purview of the above-listed
activities including companies limited by guarantee shall remain to fall under the
Regulation of the Companies Act. In hindsight this specific definition may create a
problem when activities may seem to fall outside of the scope of the definition. In our
opinion, specificity may lead to narrowing the scope and possibly, absurdity of application.
One may say the Minister has powers to widen the scope, but that is an administrative
process and it is inevitable how that usually goes.

b) Mandatory Conversion of a Company Limited by Guarantee with no share capital into Non-
Governmental Organization (NGO)
The Act has also amended the Companies Act by adding a provision to the effect of
obliging companies that were registered under the Companies Act as companies limited
by guarantee with no share capital and possessing a certificate of compliance from the
Non-Governmental Organization Act to be mandatorily converted into NGO’s and fall
under the purview of the Non-Governmental Organization Act. The Act has further
provided that, these companies will be deemed as registered under the NGO Act and
should be struck off the Register of Companies. The Written Laws (Miscellaneous
Amendments) (No.3) Act, 2019 has gone further in this to remove certain activities,
which are NGO in nature, which were allowed under S. 32 of the Act.

For more guidance into this please read our full-scale article regarding what NGOs, which
were registered as CLGs, need to do here.

c) Striking off of Companies limited by guarantee with no share capital off the Companies
Register with the Business Registration and Licensing Authority (BRELA)
The Registrar of Companies is obligated to strike off the companies register all
companies, which were previously registered as limited by guarantee without a share
capital. The exercise of striking off is supposed to be done within two months from 1st July
2019 when the amendments to the Companies Act came into operation.

d) Extension of Powers of the Registrar of Companies’ to strike off companies

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Prior to coming into operation of this amending Act, the Registrar of companies had
power to strike off a company of a register of companies if he has reasonable cause to
believe that a company is not carrying on business or in operation upon sending prior
notice to the company enquiring on whether the company is carrying on business or in
operation.

This new Act has further expanded those powers of the Registrar of companies in which
he/she may base in exercising the mandate to strike off companies. Specifically, this has
been done by adding a new provision in the Companies Act i.e. Section 400A, which has
provided that the company may be stricken off by the Registrar if;

a registered company has been fraudulently registered;

a registered company is engaged in criminal activities such as money laundering,
human trafficking, drug trafficking; terrorism financing or any other offence
punishable by law;
at the time of incorporation, there was misrepresentation or fraud by a registered
company;
by operation of law, all shareholders or directors have been prohibited from entering
the country;
a registered company is operating contrary to its objectives as prescribed in the
memorandum and articles of association

This provision has given immense power to the Registrar as the Registrar can strike off
following a prior notice sent to the company of his intention to strike off the company.
From interpretation of this provision, unlike in the previous position on striking offs; the
company is not given an opportunity to defend itself, as the notice by the Registrar is not
an enquiry notice, which attracts a reply, by the company rebutting or explaining the
situation.

One would say that the powers of the Registrar are unfettered and likely to turn into
abuse. The Registrar in this scenario acts as the complainant, investigator, prosecutor,
judge, jury and executor. Most of the factors mentioned are subject of immense
investigation, and some are even criminal in nature. There are agencies, which deal with
fraud and allied issues, and it would seem that the Registrar, an individual from the
Company registry, is given powers concurrent and capable of interfering or rendering
irrelevant, the role of other authorities. It could have been more viable, if the Registrar
was to seek a report of the other authorities in such matters before striking off a company
on his own whim and discourse.

e) Restriction on registration of companies without the word “Limited”

The Act has put much restriction on registration of companies without the word “Limited”
by cutting down number of activities that entitled a company to be registered dispensing
the word “Limited” in its company name. Prior to these amendments in the Companies
Act, the Registrar could register and dispense the word “Limited” on a company’s name
for those companies that are registered for purpose of promoting commerce, art, science,

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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.

The amendments to the Companies Act has amended the power of dispensing with the
word limited only to companies which intends to promote commerce only and intending to
prohibit payment of dividends to its members. Before these changes, other companies
formed for the purposes of promoting activities such as art, education, culture, charity etc.
were also amenable to operate without the word Limited in their title. Now the amendment
to S. 32 of the Companies Act has scrapped off all these activities and only retained
“commerce”.

3.0 Conclusion

The Written Laws (Miscellaneous Amendments) (No.3) Act, 2019 has brought many
changes on existing companies and prospective companies to be registered in Tanzania.
The Act has vested much power on the Registrar of companies to strike off companies off
the registrar based on reasonable cause without affording the opportunity to the affected
company defending itself. Further, the amendments marks a great reform on companies
limited by guarantees without a share capital as it changes the nature of the entities into
NGOs.

For us at Breakthrough Attorneys, digesting and analyzing these changes in line with the
commercial and investment competitiveness is key. What we see is that the amendments
may affect our investment attractiveness and subsequently, flow of FDI due to the
following reasons:-

1. Powers of the Registrar may be used arbitrarily.

2. There is now uncertainty to companies’ status as one can be stricken off the
registrar in a whiff of a second and lose all.
3. Reversal of the doctrine of separate personality between company and its
shareholders. This is usually a last resort option and done judiciously after
extensive consideration to pierce the veil of the distinct personality. For seamless
flowing of FDI and investment, culminating into dividend and income to the
shareholders, a protection through differentiation between the shareholders and the
company is key. These amendments are threatening this differentiation and in
essence, threatening the appetite of investors to invest in Tanzania if issues and
problems of a shareholder can visit the company and vice versa.

It is thus our humble opinion that the powers extended under S. 400A be reviewed and
revisited to ensure that our country sits in a paramount position when it comes to
attracting inward investment. It is important that we should not restrict our regulatory
compliance aspects while more and more competitors are relaxing terms and regulations
so as to gain competitive edge.

Important Notice:

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This publication has been prepared for general guidance on matters of interest only, and
does not constitute professional advice. You should not act upon the information
contained in this publication without obtaining specific professional advice. No
representation or warranty (express or implied) is given as to the accuracy or
completeness of the information contained in this publication, and, to the extent permitted
by law, Breakthrough Attorneys, its members, employees and agents do not accept or
assume any liability, responsibility or duty of care for any consequences of you or anyone
else acting, or refraining to act, in reliance on the information contained in this publication
or for any decision based on it.

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