What you did not know about company law

What you did not know about company law 1. Letterhead – mandatory requirements The Companies Act of Tanzania requires all official communication by the company to be on the letter head showing the current and former names (if any) of the serving directors. Failure to comply with this requirement subjects each officer of the company to a fine. 2. Company agreements The Companies Act of Tanzania provides that, each contract by the company should be executed by at least two directors or a director and a company secretary. If the foregoing is observed, there is no need to insert a company seal but as a matter of practice, we recommend a company seal to be inserted. Does this mean that contracts executed by other persons in the company are invalid?

No. other persons in the company may be authorized by the board of directors to be the signatories of company contracts and documents even if they are not directors. 3. Share certificates Each company is obligated to issue share certificates to its shareholders within xxxx days from the shares being allotted to the said person. The share certificate should be issued at the cost of the company. If the shares are forfeited or transferred, the share certificate of the transferor will be canceled and a new share certificate will be issued to the new shareholder. 4. Payment of share capital Did you know that the Companies Act does not mandate the shares to be paid for upfront? If you did not know, it is possible for the Company to allot shares to a person on the basis that they can be paid for at a later date or when the shareholder is called upon to pay for the shares.

This means that, any funds paid to the company by the shareholder who has not paid for his shares will not be considered as him/her having paid for the his/her shares unless it is expressly stated as such by the said shareholder and the audited financial statement of the company clearly indicate that the said shares are indeed paid for. 5. Ownership of land The Companies Act allows entity registered under the Companies Act to be allowed to own land. However, this contradicts the Land Act which mandates entities to be owned at least 51% by Tanzanians in order to be allowed to own land. Accordingly, in such a conflict, the Land Act supersedes. 6. Conversion of private company to public and vice versa It is possible to convert private company to become a public company. Note that it is not mandatory for a public company to be listed at the Dar es Salaam Stock Exchange (DSE).

The Companies Act allows a public company to be converted to a private company but in order for this to happen, there are processes to be undertaken at the Capital Markets Authority and the DSE before returning to the Registrar of Companies to convert back to a private company. 7. Third Party dealing in good faith Note that, a third party dealing with a company in good faith is not obligated to ensure that the proper procedures within the company were followed before entering into any deal with the company. This means that, such deal will be binding on the company whether or not the internal procedures were followed. 8. Registers The Companies Act requires the company to keep a number of registers which should be made available to the public for inspection during the normal business hours of the company.

The registers are supposed to show the trend of some matters from the date of incorporation for the entire lifespan of the company. Some of the registers which must be maintained by the company are the register of directors, secretary, office addresses, encumbrances, shareholders etc. For example, the register of directors will show the first directors of the company, when they came into office, their full names, age etc. date of termination etc. Failure to keep any of the registers exposes the officials of a company to a fine. 9. Dormant company

Please note that the Companies Act does not recognize the possibility of a company being dormant. If a company fails to file its annual returns for a particular period of time, the Registrar of Companies is allowed to strike the company off the register of companies. Hence, even if the company is not trading, in order to keep it ‘alive’ and avoid being struck off, the annual returns must be filed annually. 10. Striking off the company from the register Whilst the Registrar of Companies is allowed to strike off a company from the register for being dormant, it is possible for a person to apply to have a company struck off the register if the company is not operating. This is a shorter route than proceeding with winding up application. Whilst the Registrar may exercise such powers on application, the applicant must submit a tax clearance certificate from the revenue authority. 11.

Shareholder loans and conversion of debt to equity The Companies Act does not address these aspects but it is allowed for a shareholder to lend to the company and have the debt later converted into equity. Whilst there is no clear procedures set out in the Companies Act for such conversion, ordinarily there will be shareholder/board resolutions allowing the conversion and allotment of shares forms will be filed at the Registrar of Companies. Note that all foreign loans which mature after 360 days should be registered by the Bank of Tanzania. 12. Liability of directors Directors are liable for the actions or omissions of the company because they are decision makers on behalf of the company. Such liability will be imposed on each director in office. This liability extends to tax matters.

Hence, directors should be cautious when discharging their duties on behalf of the company, particularly on matters involving the revenue authority. Disclaimer The views expressed in this paper are those of the author only and should not be considered as an official interpretation, defamatory or interference of any legislation, laws or policies of any country including Tanzania. The contents of this paper should not under any circumstances be reproduced or used without our express written consent. It should not be considered as a legal advice to any of its recipient(s) and should not be relied upon without obtaining further legal advice. We accept no liability for any loss occasioned or suffered due to the contents of this paper.