COMPANIES

BY MARWA MASANDA (Advocate)

 INTRODUCTION

 Company is an ambiguous term with no strict legal meaning.

 The word company can refer loosely to a group of persons

associated together for a common purpose.

 The Companies Act defines a company under its section 2 to mean

any entity registered under it.

 Companies are governed by the Companies Act, Act No. 12 of 2002

 DEFINING A COMPANY
 To have a clear understanding of what a company is, a
person has to consider the following features which a
company acquires after incorporation.
1. separate existence/ corporate existence.
2. limited liability.
3. transferability of shares.
4. perpetual succession.
5. capacity to own, acquire, hold or dispose properties.
6. capacity to sue or be sued on its own name.
7. capacity to enter into contracts on its own name.
 SEPARATE CORPORATE EXISTANCE
 It becomes separate from those who formed it/
independent corporate existence.
 The company is a juristic person. It has separate legal
entity.
 It has its own independent corporate existence, which
is called ‘corporate personality’. It is also known as the
rule in “Solomon v Solomon”.
 A company is at law a different person altogether from
its members. This is also called “the veil of
incorporation/ corporate veil”
 LIMITED LIABILITY
 Liability of the members is limited to the extent of his
shares or guarantee only.

 An incorporated company protects the members of it in

a way of limited liability.

 In a company, the principle of principal and agency does

not apply. The shareholder is liable to the extent of his
share amount only, not exceeding that. This is the main
distinction between partnership firms and companies.
 TRANSFERABILITY OF SHARES

 Shares of a public company can easily be transferable.

 The transferee and transferor shall have to sign some

specified forms and shall submit them along with the
original share certificate to the Registrar of Companies
and register the name of the transferee.

 The name of the transferee shall also be entered in the

“Register of Members” of the concerned company and
the name of the transferor shall be struck out.
 PEPERTUAL SUCCESSION
 A man dies, but an incorporated company never die.

 It is created by a legal process and it can only come to

an end through operation of the law. It has perpetual
succession.

 Perpetual succession means that the membership of a

company may keep changing from time to time, but that
does not affect the company’s existence.

 Not even a nuclear bomb can kill a company, it can only

come to an end through a legal process.
 CAPACITY TO OWN PROPERTIES
 A company gets right to own property, acquire, hold or
dispose property in its own name.

 In Macaura v Nothern Insurance Company the principle

explained by Judge Walton was that the property of the
company is not the property of the shareholders. It is
the property of the company.
 CAPACITY TO SUE AND BEING SUED
 A company can only sue or be sued on its own name
because it is a legal entity separate from its members.

 A company comes into existence from the date on which

the certificate of incorporation is granted.

 This certificate brings the company into existence as a

legal person. It can only sue and be sued in its own
name.
CLASSIFFICATION
OF COMPANIES
 CLASSIFICATION OF COMPANIES

 There are various types or kinds of companies.

 Companies can be classified variously according to what

one intends to achieve, commonly we can classify
companies as follows;
1. Basing on the nature of ownership
2. Basing on the liability of the members
3. Place of registration
4. On the basis of control
 THE NATURE OF OWNERSHIP
a. Private/ closed companies.
 Restricted transferability of shares

 Restricted number of members

 Cannot list in a stock market

b. Public company.
 Allow to trade shares with the general public

 No restriction on maximum number of members.

 Shares in a public company are freely transferrable;

they may be listed in a stock market as distinguished

from private companies.
 Public companies issues prospectus which is
compared to invitation to treat.
 BASING ON THE NATURE OF LIABILITY
a. Limited liability companies.
i. Limited by shares. Liability limited to unpaid.
The shareholders will be liable only to the full value
of shares that they own. This is the common class
of companies.
ii. Limited by guarantee. Liability a member
guaranteed in the memorandum in case of winding
up.
b. Unlimited liability companies.
A company is unlimited if the liability is not limited
until winding up. In practice unlimited companies are
very rare.
 THE PLACE OF REGISTRATION
a. Local companies. These are companies which are
formed and registered in Tanzania.
i. Statutory: - these are companies created by special Act of the
legislature. Are owned by the government.
ii. Registered: - these are Companies formed and registered
under Companies Act 2002, Cap 212.
iii. Unregistered Companies. Section 425
b. Foreign companies.
Companies incorporated/registered outside Tanzania and they came
to operate in Tanzania as branches of such foreign companies.

Part XII of the Companies Act 2002 provide for procedures for
registration of foreign companies.
 BASING ON CONTROL
 In this aspect there are Holding companies and
Subsidiary companies. Section 487 of the CA.
 When a company has control over another company it is
known as a holding company.
 The company so controlled is known as a subsidiary
company.
 A company shall be deemed to be subsidiary of another
company if: -
1. That other company controls the composition of its board of
directors; or
2. That other company holds more than half in face value of its
equity share capital.
3. Subsidiary of another subsidiary.
FORMATION OF
COMPANIES
 FORMATION OF COMPANIES

 Stages into the incorporation of a company

1. promotion
2. registration
3. commencement of business
 PROMOTION STAGE
 To promote means to raise or to forward.
 Promoter- a person who brings a company into
existence
 Begins with choosing a name of the company and
clearing the name.
 After name clearance the following documents will have
to be prepared and submitted to the registrar of
companies;
1. Memorandum of Association (MOA)
2. Articles of Association (AOA)
3. Names of the first directors
4. A declaration that all procedures for establishing a company
has been followed.
 PROMOTERS

 Promoters are the persons to perform all functions

until a company is incorporated and forming a body of
directors.
 A person who acts on professional capacity on behalf
of a promotion e.g. lawyers who draw up the
documents, accountants and valuers who prepare
figures on valuation on behalf of the promoters, are
not promoters.
 As soon as the board of directors is formed for that
company, the promoters become functus officio (cease
to function).
 PROCEDURE FOR INCORPORATION
 Preparation and filing of the following documents to the
registrar;
i. Memorandum of association.
ii. Articles of association.
iii. A list of persons who has consented to be directors
of the company.
iv. A statutory declaration by an advocate of the High
Court engaged in the formation of the company or
by a person named as a director or secretary of the
company of compliance with the requirements of the
companies Act.
MEMORANDUM OF ASSOCIATION (MOA)
 Is the first constitutional document of a company.
 It expresses a company’s purpose and powers showing
its external status.
 containing fundamentals such as;
1. The name clause.
2. The registered office of the company.
3. Objects clause.
4. Liability of members.
5. Capital clause.
6. Association clause.
7. Share capital clause.
 MOA cont…
 MOA governs the relationship between the company and
outsiders.
 It binds the members of the company as if it had been
signed and sealed by each member
 It contains a covenant on the part of each member to
observe all its provisions.
 The object clause in a MOA was originally intended to
serve a double purpose:
1. To protect the subscribers who learn from it the purposes to
which their money can be applied, and
2. To protect persons dealing with the company, who can
discover from it the extent of the company’s powers.
 Articles of Association (AOA)
 Articles of association are the regulations, by-laws made for
carrying into effect the objects defined in the MOA.
 Articles are to serve for domestic regulations to determine
how powers conferred by the memorandum should be run and
exercised.
 Articles of Association simply means the documents formed
for regulating internal management/organization of a
company.
 They do not bind the outsiders in whichever way they are
drafted.
 The language of MOA and AOA has to be in English.
 In case of conflict between MOA and AOA provisions of the
MOA will prevail.
 CONTENTS OF AOA
 They must provide an exhaustive enumeration of all the
matters which may be subject to regulations thereby.
 They must contain the following basic contents;
1. provisions on the management of the company.
2. provisions referring to officials of the company.
3. provision talking about share capital of the company.
4. clause talking about the rights of the share holders
5. Provision relating to calls of shares, transfer, transmission etc.
6. conversion of shares into stock.
7. provisions relating to winding up of a company
8. provision relating to dispute settlement e.g. arbitration
 Once registered, they bind the company and members
of the company.
 REGISTRATION OF COMPANY
 Practically, four copies of both documents (MOA & AOA)
together with two copies of form No. 14A containing a
list of compliance matters and form No. 14B which
compiles a list of directors and secretaries are both to be
delivered to the registrar.
 The registrar will examine the documents to see whether
the statutory requirements have been complied with.
 The registrar have powers not to register a company in
case some of the documents are not proper, also in case
some of the documents are undesirable.
 If satisfied he will register the company and issue a
certificate of incorporation under S.16 (1) CA
 IN CASE OF FOREIGN COMPANY…
 There are certain requirements which need to be fulfilled
a. A certificate of compliance from the registrar of companies. It
will have to send various instruments to the registrar e.g.
MOA , AOA, and certificate of incorporation.
b. information about registered office of the company and the
place where it will be operating.
c. local persons presenting it in Tanzania and who are going to
act for and on behalf of the company and the list of authority
in the company i.e. what they can or can not do
d. If the company already has debentures in a foreign company,
a list of such debentures shall also be filed to the registrar of
companies.
 The above requirements help the registrar to determine
i. the existence of the company.
ii. the liability of the company.
iii. persons responsible for the company.
 CORPORATE VEIL
 Solomon v Solomon & Co Ltd held that a company is a
different person from those who formed it.
 It owns its own property. It owns its own debts. It can
sue and be sued in its own name. It has its own
corporate existence; it has its own corporate personality.
 An imaginary wall which separates the company from its
members called “the veil of incorporation”
 However, in certain cases the law disregards the
corporate entity and pays regards instead to members,
owners or individuals acting on behalf of the company.
 Exceptions to the general rule given in the case of
Solomon v Solomon co. Ltd.
 LIFTING OF CORPORATE VEIL
 Grounds for lifting/disregarding the corporate veil
A. Statutory grounds
B. Judicial grounds
a) Public interest.
b) Where a company is used as a sham, dummy or
cloak to escape legal liability.
c) Where a company has got an enemy character (e.g.
during war).
d) To discover the relationship within the group of
companies.
e) Avoiding taxes, defeat public convenience, justify
wrongs or defend crimes.
 THE DOCTRINE OF ULTRA VIRES
 The objects clause of a company defines the powers and
capacity of the company.
 A company has power to carry out only such objects
enshrined in the MOA together with anything incidental
thereto.
 Anything done which is outside the scope of the objects
clause is ultra vires and void i.e. does not bind the
company.
 An ultra vires transaction leads to personal liability of the
directors.
 The underlying policy is based on the elements of
investor protection, creditor protection and public policy.
DOCTRINE OF CONSTRUCTIVE NOTICE
 Constructive notice means the knowledge of a fact is
presumed or imputed by law in respect of the public
documents of a company.
 Public documents of a company includes the prospectus,
MOA, and resolutions of the General Meeting.
 This doctrine operates to prevent a third party from
saying that he did not know that the constitution in a
particular act was ultra vires.
 The consequence is that if a person enters into a
contract which is beyond the powers of the company as
defined by the MOA, he does not acquire any right
under the contract against the company.
 DOCTRINE OF INDOOR MANAGEMENT
 General rule. An outsider is not supposed to know
anything concerning the internal management of the
company i.e. things stipulated in the Articles or all other
maters which are not public. The “Turguand Rule”.
 Exceptions
1. The rule does not apply where the person dealing
with the company knows that the transaction is
irregular.
2. The doctrine does not apply where the transaction
requires the authority of a special resolution or an
ordinary resolution which requires to be filed with the
registrar of companies.
 Exceptions cont…
3. The rule does not apply were the transaction
involves the exercise by person acting for the
company, of authority which he could not ordinarily be
assumed to have.
4. The rule does not apply where the transaction is of
so usual in nature that the person dealing with the
directors or others on the company’s behalf is put on
inquiry as to the regularity of the transaction.
5. The rule does not apply where a person relies upon
a document which is forged.
6. The rule does not apply where the transaction is
ultra vires the memorandum.
MANAGEMENT OF
COMPANIES
 ADMINISTRATION AND MANAGEMENT
 Administration of a company is done by the directors
and its members through meetings.
 Chapter 7 of the Companies Act deals with companies’
management.
 Duties of a director
1. A duty to act bonafide for the interests of the company.
2. Duty of care, skill and due diligence.
3. The non-conflict rule
 Directors of a company may be liable in the following
circumstances;
1. Where they act ultra vires the company.
2. Where he acts negligently.
3. Breach of trust.
4. Misfeasance.
 COMPANY MEETINGS
 The Companies Act mandates for the holding and
conduct of company meetings as will enable active and
competent shareholders to take effective part in the
business done in meetings.
 Kinds of company meetings;
1. Statutory meetings. These are meetings held only
once in the lifetime of the company.
2. Ordinary/ annual general meetings. Section 133
3. Extraordinary general meetings. Section 134
4. Class meetings. Section 229
 WINDING UP A COMPANY
 Is a statutory process of terminating the company’s
existence.
 Section 267 provides for models of winding up;
1. by members/ voluntary winding up
2. by creditors/ compulsory winding up
 In a case of creditors winding up, the court will appoint
an official receiver to act in place of the Board of
directors to try to put the company back in its shape.
 A company can only cease to exist once the liquidation
process is complete and a court order is issued to the
registrar of companies to struck out the name of such
companies in his list of registered companies.
THANK YOU FOR YOUR
ATTENTION!