COMPANY LAW

BUSINESS ORGANIZATION

TYPES OF ORGANIZATION

Foreign investors can operate in Tanzania through the same means as those available to domestic investors.

The principal forms of business organizations that can be established in Tanzania are:

Sole proprietor
Partnership
Joint venture
Incorporated company
Registered branch of an overseas company


SOLE PROPRIETOR

The simplest form of business organization is that of the sole proprietor, where an individual carries on business on his own account and is personally responsible for all its aspects, including all debts incurred. Sole proprietors are not required to prepare accounts which are audited or published, but they are subject to the  normal registration requirements for business organisations.


PARTNERSHIP

Partnerships are governed by the Contract Ordinance No.1 of 1961. The minimum number of partners allowed is two and the maximum is 20. Partnerships of solicitors, accountants involves an agreement detailing the rights and duties of the partners, areas not covered in the agreement being governored by the Contract Ordinance.Partners are personally responsible for all liabilities incurredby the partnership.

As with sole traders, the liability of partners is unlimited regardless of the capital they originally introduced. Each partneracts as an agent of the partnership, being able to enter into contracts and undertake obligations on behalf of the partnership in the course of the business. Partnerships are not required to prepare audited accounts, but they are subject to the normal registration requirements for the business organizations and other statutory obligations.

It is possible to form a limited partnership which enables certain partners to limit their liability to the value of their investment.


Limited partnerships are not common in Tanzania.


JOINT VENTURE

A joint venture is formed when two or more individuals or companies combine resources for business purposes. The joint venture usually takes the form of a limited company or a partnership.


INCORPORATED COMPANY

There are three types of incorporated companies: unlimited company,a company limited by shares and a company limited by guarantee. In an unlimited company the members (ie.shareholders) are personallyresponsible for all the debts of the business.

The most common form of business organization is limited company.The limited company has two major advantages over the other corporated or unincorporated bodies.

- Shareholders liability is limited to the amount unpaid on their shares, although it is a common practice for the shares to be  paid for in full when they are issues.

- The company has legal personality separate from that of its members.
  This means it can enter into contracts, own property, sue or be sued in its own name without affecting the rights and obligations  of its shareholders.

Frequently the principle of limited liability is adjusted so that a holding company guarantees the debts if a subsidiary or directors give personal guarantees as a condition for the provision of loan finance. Two main types of limited companies exist, private limited companies and public limited companies. A private limited company cannot offer shares to the public, whereas a public company can raise funds through public share issue. However, the law imposes stricter requirements on public companies than on private companies. In considering whether to register as a public or private company, it is necessary to balance the advantages and disadvantages. Most direct investment from overseas operates through the form of a private company.

The liability of members in companies limited by guarantee is limitedto the amount guaranteed. Companies limited by guarantee with a share capital are not common.


REGISTERED BRANCH OF AN OVERSEAS COMPANY

An overseas company (defined as a company incorporated outsideTanzania which has established a place of business with Tanzania)can set up a branch in Tanzania which may operate in the same way as a locally incorporated company. A branch is required to complywith certain sections of the Companies Ordinance, Cap. 212.

All locally incorporated companies and registered branches of overseas companies have to register with the Registrar of Companies whose office is in Dar es Salaam. The name of the company or branch must not be the same as any names already included on an index maintained by the Registrar of Companies. A name may not be allowed if it is offensive or misleading and certain words and expressions are not allowed.

Both locally incorporated and overseas companies may trade using a name other than its corporate name.


HOW TO REGISTER A COMPANY

LIMITED COMPANY

To form a limited company, the following documents must be filled with the Registrar of Companies:

- A copy of the Memorandum and Articles of Association, signed by   at least two shareholders and witnesses.

- Details of the nominal share capital of the company, registration fee, filing fee and stamp duty are payable when the company is   corporated.

- A statement of the persons who will act as the first directors,   managers and secretariat of the Company together with their written consents, and the address of the company's registered office.

- A statutory declaration that all the requirements of the Companies  Ordinance Cap. 212 relating to registration have been complied with.

The above documents are usually prepared by an advocate or firm engaged in the promotion of companies. The statutory declaration can be made by the advocate, a director or the secretary named in the articles.

Since the two shareholders who sign the memorandum and articles of association can be nominee shareholders, the true proprietors do not have to be in Tanzania to sign the documents before witnesses. Wholly owned subsidiaries of another company must still have a minimum of two shareholders. To meet this condition one director holds just one share as a nominee of the holding company. Foreign individuals or companies can be shareholders in a locally incorporated company.

Once the Registrar is satisfied that the statutory requirements have been met he issues a certificate of incorporation effectively authorizing a company to start trading. A company cannot ratify contracts made on its behalf before incorporation.

All companies must display their names (including the word limited)outside everyplace of business or office. Stationery must include the company's name, place of registration, registration number and address of the registered office. Each company must have its own company seal.

In a public company, shares can be offered to the public only after the issue of a prospectus or statement in lieu of prospectus.


REGISTERED BRANCH OF AN OVERSEAS COMPANY

Preliminary registration requirements are:

- A certified copy of its Articles of Memorandum of incorporation   or other constitution documents.

- A list of its directors and secretary, giving names, addresses   and nationalities.

- The name and address of a registered resident on whom legal   notices for a company can be served.

- A form detailing the documents submitted, declaring the   establishment of the branch and confirming compliance with the   Companies Ordinance Cap.212.

All documents submitted must be in English or accompanied by a certified English translation. No filing fee or capital duty is payable. However, a registration fee is payable. The facts will determine whether the operations of an overseas company in Tanzania represents the establishment of a branch required to be registered in Tanzania. The presence of a visiting salesman or use of an agent does not constitute a branch nor the setting up of a representative office which enters into contracts on behalf of the company. Once the Registrar is satisfied that the statutory requirements have been met he issues a certificate of compliance.

Registered branches of overseas companies must display the company's name, country of incorporation and limited liability status (where applicable) at every address at which the branch carries on business and on all stationery.


Other Forms of Enterprises

Other forms such as company limited by guarantee, unlimited company, cooperative society, public corporation, etc, are likely to be of limited interest to foreign and most local investors.


LICENCES REQUIRED BY A BUSINESS ENTERPRISE

In addition to approvals required to establish business entries such as the aforementioned Certificate of Incorporation for a limited company, and the Investment Promotion Center's Certificateof Approval, which entitles the enterprise to incentives and guarantees under the National Investment (Promotion and Protection)Act, certain other licences may be required, depending on the natureof the Business. Those summarized below do not include licences required by investors in the mining and petroleum sectors.


Industrial Licence

Under the National Industries (Licencing and Registration) Act, 1967, an Industrial Licence is required by medium and large-scale industries as determined by the Minister responsible for industry. Small-scale industries require a Certificate of Registration. Those wishing to operate a manufacturing industry or factory should apply to the Registrar of Industries. The company Registration Certificate of Approval should be submitted with the application. An Industrial Licence is granted automatically to holders of the IPC Certificate of Approval; in other cases the application is considered by the Industrial Licencing Board. Initially a temporary licence is given for a period of up to three years. A progress report is then required at the end of each calender year.


Certificate of Registration of a Factory

Under the Factories Ordinance, Cap. 297, any person occupying a factory or using premises as a factory, requires a Certificate of Registration from the Factories Inspectorate of the Ministry of  Labour. For this purpose an application must be submitted together with plans for the factory. Plans for new buildings in urban areas  also need the approval of the Municipal Council's Land Department.


Allocation of Land and Title Deed

Under the Land Registration Ordinance, Cap. 334, any person requiring land for an investment project must apply for site allocation to the Ministry of Lands, Housing and Urban Development,Regional Land Officers, District Land Officers or village committees,depending on the location of the land. If surveyed land is available for allocation, the application will be considered by the Land Allocation Committee in the regions, or by the Ministry of Lands and Urban Development in the case of Government land.

Investors who have been allocated land for an investment project should apply to the Land Registry, Ministry of Lands, Housing and Urban Development under section 35 of the Land Registration Ordinancefor the grant of A Certificate Title.


Consent to Construct a Hotel

Any person wishing to construct a new hotel should apply to the Ministry of Tourism, Natural Resources and Environment, under theHotels Act, 1963, for a letter of approval. A feasibility study and plans for the proposed hotel should be submitted with the application. In addition to this, an annual Hotel Licence is required to operate a hotel.


Licence to fell Timber

Any person wishing to obtain timber from public lands must apply for a licence from the Director of Forests in the Ministry of Natural Resouces and Tourism or from forest officers at regional or district levels.


Fishing Licence

Any person wishing to fish in the territoial waters or lakes of Tanzania must apply to the Director of Fisheries, Ministry of Tourism, Natural Resources and Environment for a fishing licence.This licence lasts for one calender year.


Tourist Agent's Licence

Under the Tourist Agents (Licencing) Act, 1969, any person carrying on the business of tourist agent - including travel agents but  excluding hotels, taxis or private car hire firms - must apply to the Tourist Agents Licencing Authority for a Licence. This is an annual licence. Applications must be accompanied by supporting documents such as vehicle registration documents, residence permits for non-citizen employees, insurance cover notes, etc.

Any person carrying on a business in Tanzania (including a manufacturing business) is required under the Business Licencing Act, 1972, to obtain an annual Business Licence. Business covers any form of trade, commerce, or allocation, together with certain 
specified professions carried on for profit or gain - other than businesses which are specifically exempted such as farming and mining.

The licencing authority may be any public authority appointed by the Minister of Finance. For retail businesses the authority is the local (municipal, town or district) Council. For non-retail businesses it is the Regional Trade Officers of the Ministry of Industries and Trade. Business licences expire at the end of March each year. Applications must be accompanied by a Tax Clearance Certificate issued by the Income Tax Department.


Acquisition and Transfer of Technology

The Tanzania Commission for Science and Technology (COSTECH) was  established by the Act of Parliament in 1986, and started functioning in 1988. The establishment of a national Center for Development and Transfer of Technology is one of the main functions of COSTECH. Matters pertaining to the choice, acquisition, monitoring, control, assimiliation or adaption and transfer of appropriate technology are responsibilities of the center. A two year project to be funded by UNDP and executed jointly by COSTECH and UNIDO has been worked out and is expected to come into operation in late 1991.

According to the National Science and Technology Policy document published by the Government in 1985, in the acquisition of technology consideration should be given to national interest, mix of indigenous and imported technology, alternative means of acquisition, selection and relevance of products, cost and related conditions.


REPORT AND FILING

No specific accounting, auditing or disclosure rules cover partnerships or sole traders. Requirements exist in respect of registered branches of overseas companies and extensive legislation governs the financial statements of limited liability companies  incorporated under the Companies Ordinance Cap. 212.

Limited liability companies must send copies of their financial statements to all their shareholders and must present director's  report and financial statements to the shareholders at their annual general meeting. In addition, they must file annual returns with the Registrar of Companies, updating information already held by the Registrar on the company's issued share capital, its directors and secretary, registered office and so on. Accounts must be filed with the Registrar within twelve months of the accounting period.

For the registered branch of an overseas company, the financial statements of the parent company (not the locally registered branch)must be filed with the Registrar of Companies annually.


Audit

Incorporated companies are required to audit their accounts once every year. The auditor must hold a professional qualification recognised for this purpose by the National Board of Accounts and Auditors (NBAA). The auditor is neither an agent of the company nor an agent of management but is responsible to the shareholders. To ensure the independence of auditors, the Companies Act requires that the auditor must not hold any office of the company. The accounting profession has further requirements to preserve the independence of its members, in particular the ruling that the auditor must not hold shares in the companies he audits. It is the duty of the auditor to report to shareholders on the accounts stating whether they give a true and fair view of the state of affairs of the company at the balance sheet date and of the results for the period ended on that date.


General Meetings

A company must hold its first general meeting within 15 months of incorporation, and once in each subsequent calendar year but not more than 15 months after the date of the previous general meeting.Accounts are to he laid before members in general meetings (usuallythe annual general meeting). Accounts must be circulated not less than 14 days before the general meeting before which they are to be laid (if all members entitled to attend and vote at the meeting agree, notice may be waived).
 
The accounts to be circulated consist of, as a minimum, the balance sheet, the profit and loss account and notes, and the auditors' and directors' reports. 

ACCOUNTING REQUIREMENTS

The prime requirements of the Companies Ordinance Cap. 212 are supplemented by the Tanzania Statements of Standard Accounting Practice (TSSAP) and Statement of Recommended Accounting Practice(SORP) issued by the professional accounting body. TSSAP details accounting principles and rules to be followed, by all companies unless otherwise stated, and any departure from these is required to be disclosed and explained.

SORP relates to treatment of exchange losses. The company is also required to detail, in the notes to the financial statements the principle accounting policies which have been applied.


ACCOUNTING RECORDS

The Companies Ordinance Cap. 212 requires a company to keep proper accounting records that:

- disclose with reasonable accuracy, at any time, the company's financial position.

- enable the directors to ensure that any financial statements prepared from the records give a true and fair view of the company's state of affairs and its profit.

The accounting records must in particular contain the following:

- a daily record of all the money paid and received, with details of the reasons for the payments or receipts

- a record of all assets and liabilities of the company where the company deals in goods, statements of stock held by the companymust retain all stocktaking records from which stock statements have been prepared and, except in the case of goods sold by wayof ordinary retail trade, records of all goods sold and purchased
in sufficent detail to enable buyers and sellers to be identified.

- disclose with reasonable accuracy the company's financial position  at intervals not exceeding six months.

- enable the directors to ensure that any financial statements prepared by them show a true fair view.


Companies must also maintain the following statutory books:

- Register of members
- Minute books of meetings of directors and shareholders
- Register of directors and secretaries
- Register of directors interest in shares and debentures
- Register of charges such as mortgages or debentures, if any
- Register of debenture holders, if any.

Some of the above statutory books are required by law to be retained at the registered office, the rent may be kept at another place notified to the Registrar and must not be taken out of the country of incorporation.


FORMAT OF FINANCIAL STATEMENTS

A company's financial statements should consist of:

- The directors report
- The auditors report
- The profit and loss account
- The balance sheet
- A statement of source and application of funds
- The notes to the financial statements

The Companies Ordinance Cap.212 requires the accounts to be prepared in standard format although a limited choice of formats is permitted.

If a company has subsidiaries, group accounts must be prepared unless the company is a wholly owned subsidiary of another company.A company is considered to be a subsidiary of another if the other company owns 50 per cent or more than 50 per cent of the voting power in that other company. Group accounts normally consist of a single set of consolidated financial statements (balance sheet, profit and loss account and source and application of funds) and the company's own balance sheet.