In this article on business and company law, we explore the Companies Acts of Tanzania and Uganda along the following four components: pre-incorporation contracts, the ultra-vires role (contracts beyond powers of the company), numbers of directors and members. At the end of this post, we establish which Companies Act is more progressive.
Introduction
A company is in the eyes of law an artificial person, with no physical existence; neither soul nor body of its own as such it cannot act on its own, it can do so through some human agency called the directors. The word ‘Company’ is an amalgamation of the Latin word ‘Com’ meaning “with or together” and ‘Pains’ meaning, “bread”. Originally, it referred to a group of persons who took their meals together.
Section 2 of the Companies Act, 2002 (Cap 212) (the “CA 2002”) of Tanzania defines Company as “…a company formed and registered under this Act or an existing company”. A company is nothing but a group of persons who have come together or who have contributed money for some common purpose and who have incorporated themselves into a distinct legal entity in the form of a company for that purpose.
Lindley L.J defines a company as “an association of many persons who contribute money or money’s worth to a common stock, and to employ it in some common trade or business, and who share the profit or loss arising therefrom”.
Lord Justice Marshall defines a corporation as “an artificial being, invisible, intangible, existing only in contemplation of the law. Being a mere creation of law, it possesses only properties which the charter of its creation confers upon it either expressly or as incidental to its very existence”.
Under Halsbury’s Laws of England, the term “company” has been defined as a collection of many individuals united into one body under special domination, having perpetual succession under an artificial form and vested by law with the capacity of acting in several respect as an individual, particularly for taking and granting of property, for contracting obligation and for suing and being sued, for enjoying privileges and immunities in common and exercising a variety of political rights, more or less extensive, according to the design of its institution or the powers upon it, either at the time of its creation or at any subsequent period of its existence.
Normally, in the world of commerce the word “company” is used to denote an association of people so associated for an economic purpose e.g. business. Companies can be formed for other purposes as well – for example – for charity. A company is also define to mean a group of persons associated together for the attainment of a common end, social or economic or a voluntary association of persons or individuals formed for some common purpose.
Conducting business, expanding into untapped markets, exploiting different forms of ventures among others are opportunities being considered by many companies today. This will many a time be in the form of setting up a new company as a legal entity to do business in a particular area. This can quickly overwhelm many who find themselves out of their element without the assistance of folk with domain expertise.
In this paper, we examine company law in Tanzania and Uganda, we explore the similarities and differences between the legislation that is the Companies Acts. We also look at evidence of progressiveness and smooth and straightforward support for business enthusiasts. We will examine the following areas:
- Pre-incorporation contracts
- The ultra-vires role (contracts beyond powers of the company)
- Directors – numbers
- Members – numbers
Overview of the Companies Act – Uganda
The Companies Act 2012 commenced on 1 July 2013 (the Companies Act (Commencement) Instrument SI 24 of 2013). The Companies Act, 2012 (the “CA 2012”) introduces many significant changes in Ugandan Company law. According to Mwesigwa and Sendi (2014), it is a belated but welcome attempt to catch up with global trends in the law governing corporate entities.
The key reforms contained in the Companies Act 2012 on incorporation of the company and consequential matters, company finance, management and administration of the company, protection of minority shareholders, registration of foreign companies, voluntary winding-up of the company and the introduction of a code of corporate governance. All aspects of capital markets (such as the prospectus) and insolvency provisions have been omitted from the Companies Act 2012 and transferred to the Capital Markets Authority Act and the Insolvency Act 2011 respectively (Sebalu & Lule, 2013).
Overview of the Companies Act – Tanzania
The Companies Act 2002 traces its origin from the Companies Ordinance of 1929, a British Colonial Legislation that remained in force without any significant changes until 2002, when the New Companies Act, Act No. 12 of 2002 was enacted and came into force on the first day of March, 2006.
The older legislation regulated trading companies and other associations including the imposition of tax on nominal capital, regulation of dividends and surpluses and related matters. That legislation was in force for over 77 years which period covered not only the tail end of the colonial period but also the period of state-planned economy through to liberalisation in the 1990s. Clearly it was time for reform to cover an increasingly sophisticated market and the dramatic changes to the Tanzanian economy.
The new reforms were introduced with the Companies Act 2002, a Companies Act on the shelf for almost three years.
The Companies Act 2002 introduced significant reforms to Tanzanian company law. Its full title alone imparts some of the significance, stating that it is an act to repeal and replace law relating to companies and other associations, to provide for more comprehensive provisions for regulation and control of companies, associations and related matters.
The question then is how far reaching the reforms have been and how compliant the users have been. The short answer is that the new legislation introduced substantial changes, ones that intended primarily to clarify existing legislation regarded by many as unclear. Given the intention therefore of the new legislation was simply clarification, compliance should be relatively straightforward.
Brevity is not a feature of the Companies Act 2002 despite aims to put in place a relevant and modern legal framework, which contains 490 sections, 140 more than its predecessor. Key areas of change include in relation to the following:
- Accounts and audit
- Annual returns (including requirement for audited accounts to be attached, even for private companies)
- Companies in distress (including rescue mechanisms for companies approaching insolvency, and detailed rules on the management of insolvent companies and on winding up of companies)
- Directors and officers (including age limits, increased accountability, increased regulation and disclosure (including of remuneration of individual directors))
- Increased filing fees and penalties
- Meetings and resolutions
- Protection of minority shareholders
- Protection of third parties in relation to company’s and its officers’ capacity to act
- Protection of investors in listed companies
- Reduction of share capital
Pre-incorporation Contracts
A pre-incorporation contract is an agreement entered into before the incorporation of a company by a person who purports to act in the name of, or on behalf of, the company, with the intention or understanding that the company will be incorporated and will thereafter be bound by the agreement.
Persons who wish to form a company will have to give thought to the assets that are to be acquired by the company and the methods that are to be adopted to vest rights to those assets in the new company. In practice, companies not yet in existence often experience the need to acquire certain rights and liabilities before incorporation (such as securing a lease contract or purchasing property/offices) to ensure that the company will effectively be able to commence business after its incorporation.
The problem that arises for unincorporated companies is that they do not yet have legal personality – as a result of their non-existence – and thus they cannot enter into any agreements themselves in an attempt to secure certain benefits. The most apparent solution would be for the company’s promoters or agents to contract in the company’s name or on behalf of the company in order to incur rights and liabilities for the company during the period before incorporation or registration.
However, the common law presents an obstacle to the individual who tries to contract as an agent for a principal that does not yet exist, in an attempt to obtain certain benefits for that principal. The common law principles flow from the understanding that a company – prior to its incorporation – is not yet a legal entity and can therefore not perform juristic acts such as the conclusion of contracts. In the same vein, no person has the authority to act as an agent of a company that has not yet been established.
Where an agent proceeds to contract on behalf of a non-existent principal, with the expectation that the principal will ratify the transaction upon incorporation, the common law rules of agency will preclude the ratification. These rules determine that a principal, not yet in existence at the time of the transaction, is not competent to ratify and hence there can be no representation of such a person. Ratification has a retrospective effect and for this reason a person cannot act on behalf of a principal that does not yet exist. A company can thus not acquire rights nor incur liabilities in this manner.
Promoters will, under normal circumstances, not wish to incur any personal liability when contracting on behalf of an unincorporated company. If the promoter decides to abandon his venture at any given time, he would seemingly want to do so without liability. In return, third parties’ interests need to be protected against the unforeseen conduct of the promoter and the unincorporated company in the event that the company fails to be successfully incorporated.
Companies Act (CA 2002)
The legal position is that two consenting parties are necessary to a contract, whereas company, before incorporation, is not an entity. The promoters cannot therefore, act as agents for a company which has not yet come into existence. As such the company is not liable for the acts of the promoters done before incorporation. A pre-incorporation contract purported to be made by a company which does not exist is a nullity. As such the company when it comes into existence can neither sue nor be sued on that contract.
Position of promoters:
- Company is not bound by pre-incorporation contracts
- Company cannot enforce pre-incorporation contract
- Promoters remain personally liable.
Can a company ratify/adopt a pre-incorporation contact after it comes into existence?
- Company cannot ratify a contract entered into by the promoters on its behalf before incorporation. The doctrine of ratification applies only if an agent contracts for a principal who is in existence and who is competent to contract at the time of contract by agent.
- It cannot by adoption or ratification obtain the benefit of the contract purported to have been made on its behalf before it came into existence.
Pre-incorporation contract – solutions to personal liability
The following methods may be used to ensure that the company becomes, after incorporation, an effective party to a pre – incorporation contract:
A draft agreement may be settled with the other party so that when the company is formed it enters into the draft agreement thus giving it contractual force when signed also by the other party. In order to ensure that the company does enter into the contract, the memorandum or articles of a new company can be drafted to include a provision binding the directors to adopt it. It will be noted here that the promoter here is not liable because there is no contract with him.
The promoter can make the contract himself and be bound by it, provided the other party agrees that the promoter shall be released from his obligations under the contract if and when the company enters into a new, but as regards terms, identical contract with the other party after incorporation. This is really recommended for those cases – which are many – where the promoter(s) will be in effective control of the company after incorporation and can ensure the making of a new contract.
Simply making the contract with the third party and allowing the promoter to assign the benefit of it to the company when it is formed is not recommended because the law does not allow a person to assign the burden of a contract. Therefore the promoter remains personally liable for the performance of the agreement even after the assignment to the contract.
Where the promoter is anxious that the company should acquire property which he does not himself own, he may take an option to purchase for, say three months. If the company later wishes to take the property, the promoter may assign the benefit of the option to the company or enforce it for the benefit of the company. If the company does not take over the property, the promoter is not liable to do so but he may lose any money which he paid for option.
Section 40 (1) of the Companies Act (CA 2002) states that the promoter is personally liable ‘subject to any agreement to the contrary’. Thus the promoter could agree when making of a contract that he should not be personally liable on it, even if the company after incorporation do not make a new contract. This also applies to the making of a deed.
Uganda – the Companies Act (CA 2012)
The Companies Act 2012 introduces many changes although the position regarding pre-incorporation contracts remains considerably the same -it codifies the common law by providing that contracts which purport to be made on behalf of the company before the company is formed have the same effect as if made with the person purporting to act for the company- these are only binding on the promoter rather than the company itself. Section 54(2&3) of the Companies Act 2012 provides that such contracts may be adopted by the company without the need for novation and thereafter the liability of the promoter shall immediately cease.
Promoters aren’t entitled to recover payment for promoting the company-in-formation. Even when a valid contract exists, it will be between the promoter and intending directors, since a company is not registered (incorporated) at this stage. A promoter will be entitled to recover any claim against an individual, not the Company (registered) despite rigorously helping in its formation. An unregistered Company does not have legal personality to enter into contracts with another party.
Ratification: A Company is not allowed to ratify or adopt a pre-incorporation contract because it did not exist in the first instance.
What usually happens is a matter of personal liability between the promoters and the intending Directors. The promoter undertakes to enable the formation of the Company but is not part of the Company, anyway.
Gentleman’s Agreement: Most promoters tend to recover payment under this precinct because they do not have remedies from the Company, in spite of its eventual legality.
Pre-incorporation contracts are contracts; but they are contracts between individuals and do not involve the Company. Should the Company be incorporated, it cannot be forced to pay a promoter for services previously offered while it sought legal entity.
Verdict: Both Tanzania and Uganda are considerably similar in their stance on pre-incorporation contracts but Uganda’s reform that a company may adopt a pre-incorporation contract made on its behalf on formation and registration without a need for novation which was a requirement under common law makes it the progressive Companies Act here. After adoption by the company under the Companies Act 2012, the liability of the promoters ceases.
The ultra-vires role (contracts beyond powers of the company)
Companies Act (CA 2002) – The Objects of the Company
The objects clause defines the sphere of the company’s activities, the aims that its formation seeks to achieve and the kind of activities or business that it proposes to undertake. A company cannot conduct any business foreign to its objects clause.
If anything which is not authorized by the object clause is undertaken, it is considered ultra vires and hence not binding on the company.
The objects clause gives protection to shareholders who learn from it the purposes for which their money can be applied. It ensures them that their money will not be risked in any business other than that for which they have been asked to invest. Similarly, it protects individuals who deal with the company and who can infer from it the extent of the company’s powers. The subscribers to the memorandum may choose any object or objects for the proposed company. However the objects should not;
- Include anything illegal
- Be in contravention of the Companies Act
- Include anything which is against public policy.
The doctrine of ultra vires
The company has the power to do all such things as are:
- Authorized to be done by the Companies Act 2002.
- Essential to the attainment of its objects specified in the memorandum.
- Reasonably and fairly incidental to its objects.
Anything else is ultra vires the company. Ultra vires act is void, as such it cannot create any legal relationship. Such an act being void cannot be ratified even by the whole body of shareholders.
To overcome the obstacles imposed by the ultra vires doctrine, experts have come up with three ways/methods of drafting the objects clause:
- The inflicted object clause – state any imaginable business
- The Independent object clause – each of the clauses shall stand as if it severally formed an object clause of an independent company.
- Subjective objects clause – The Company can engage in any business which in the opinion of the directors, the company can advantageously engage in.
In Tanzania, the doctrine of ultra vires in business association law was aimed to protect the investors in the sense that the company could not devote any of the funds to objects strange to its own objects under the memorandum but due to development of the law and desire to maximize profit by the companies the rule seemingly is watered down if not a walking corpse because there are certain acts under the company law which though not expressly stated in the memorandum are deemed impliedly within the authority of the company and therefore they are not deemed ultra vires.
In Tanzania the aspect of the capacity of a company is dealt with by sections 35, 36 and 37 of the Companies Act 2002. It provides for the following key principles in respect to the capacity of the company: A company’s capacity is not limited by its memorandum. The capacity of a company to act is governed by its memorandum.
Previously a company could claim an act was invalid if ultra vires (i.e. outside its authority as stated in its memorandum) and thus would not be liable for such act. The Companies Act 2002 stipulates that it shall no longer be a defense that an act is invalid by reason of limitation of capacity by its memorandum, and this concept is rolled out to acts of directors, i.e. a company will be unable to disclaim liability by reason of a director’s act being ultra vires.
Further protection is offered to persons dealing with the company in that they need not enquire into the capacity of the company or authority of its directors and the company would nevertheless be bound by its action. This new legal aspect is aimed at defeating the unscrupulous directors who dealt with the interests of the company at the expense of bona fide third parties. Further, there is a new development in the since that any person dealing with the company has no duty to enquire as to the capacity of company or authority of directors in a certain transaction.
Exempli gratia section 7 of the Companies Act 2002 states that where the memorandum of a company states that it is to carry on business as general commercial business, it shall be able to carry on any trade or business whatsoever. This provision seems to water down the whole doctrine since a company so registered with its memorandum will by no means be held to have acted ultra vires to its memorandum, further a business company can raise its capital by borrowing.
To conclude, in Tanzania, any act done outside the scope of the memorandum remains binding on the company.
Read an overview of new features of the Companies Act in Tanzania here.
Companies Act (CA 2012) – The Objects of the Company
In Uganda, the Companies Act 2012 now permits a company to have a general objects clause in its memorandum. It provides that it is sufficient where the company is a commercial company for the memorandum to state that the company’s object is to carry on any trade or business whatsoever and that the company will have the power to do all such things as are incidental or conducive to the carrying on of any trade or business by it. In practice, it will be acceptable for a company to have what is essentially a one-page memorandum.
This is a new development which essentially abolishes the operation of the ultra-vires doctrine. In the past, as a result of the operation of the ultra-vires doctrine, it became the practice for companies to increase the objects clause by adding to the principal objects a large number of objects just in case they were needed.
Also, companies began to add a large number of powers to their objects clauses. There is a technical difference between objects of a company and the powers given to it to implement those objects. These powers are implied and a company has an implied power to do whatever is reasonably incidental to the carrying on of its objects.
However, because of the ultra-vires rule, and some confusion as to which powers were implied and which had to be expressly stated, companies’ objects clauses contained a mixture of objects and powers. The Companies Act 2012 additionally provides that the validity of an act done by a company shall not be called into question on the ground of lack of capacity by reason of anything contained in the companies’ memorandum. That being so, directors may, under specific circumstances, still be liable in person for acts that are performed ultra vires.
Of great concern is what a general objects clause signifies for a company’s borrowing powers and whether this power has to be expressly stated in the memorandum. Strictly speaking, the answer is ‘no’ because in law, the borrowing power of a commercial company is implied and considered incidental to the carrying on of business. Nevertheless, a resolution of the company will still be required for the power to be validly exercised.
Therefore, the rather archaic doctrine of ‘ultra vires’ has been repealed by the current law. The Companies Act 2012 provides that any act done by the company shall not be called into question on the ground of lack of capacity or by reason of anything contained in the Companies Memorandum. However a member of the company may still bring proceedings to restrain a company from engaging in an action beyond the companies’ capacity.
Verdict: Current Companies Acts in Tanzania and Uganda have both repealed the ultra vires doctrine, Tanzania doing so through reforms in the Companies Act 2002 and Uganda doing so through the Companies Act 2012. However Uganda’s Companies Act provides an avenue for the members of the company to nevertheless bring proceedings to restrain a company from engaging in an action beyond the companies’ capacity which makes it the more progressive of the two.
Directors – numbers
Section 186 of the Companies Act 2002 stipulates that every company shall have at least two directors. The number of the directors and the names of the first directors shall be determined in writing by the subscribers of the memorandum of association or a majority of them and until such determination the signatories to the Memorandum of Association shall be the first directors.
Unless otherwise determined by ordinary resolution, the number of directors shall not be subject to any maximum but shall be not less than two. Therefore, Tanzanian law requires all companies to have a minimum of two directors unless the company is a single shareholder company in which case a single director is allowed. In any case, this setup is generally not advised.
Similarly, Ugandan legislation states that every company other than a private company must have at least two directors and private companies must have at least one director. This is provided for by section 185 of the Companies Act 2012 but it is silent on the maximum number of directors permitted.
Verdict: Current Companies Acts in Tanzania and Uganda both take a similar position regarding the number of directors
Members – numbers
Under the Companies Act 2002, a minimum of two members or shareholders (subscribers) is required to setup a company. If at any point the number of members falls below two and the company continues to carry on business for more than six months, then any person who becomes a member may become jointly and severally liable with the company for the payment of any debts accrued during the period of reduced membership.
Section 27(1) (b) of the Companies Act 2002 states that the maximum number of permitted members or shareholders in a private limited company is 50. However, the limit does not include employees and former employees who are members of the company.
Re-registering as a public company
A private company can reregister as a public company by altering its memorandum. There are no restrictions on the maximum number of public company members. However, a minimum of seven members is required.
Unlimited company or company limited by guarantee
According to section 10(1&2) of the Companies Act 2002, the articles must state the number of members with which the company proposes to be registered.
Recent changes in company law permit companies to have only one member or shareholder. However, at the time of writing, these changes are not yet effective. In 2012, the Companies Act 2002 was amended to introduce, as an addition to the existing company setup, a new one shareholder company.
The amendment was brought in by the Business Law (Miscellaneous Amendments) Act No. 3 of 2012 whereby its section 18 extends the meaning of the word company by amending section 3 of the Companies Act 2002, to include a “single shareholder company formed by an individual”. The amending law also introduced a new Section 26A to the CA 2002 whose subsection (1) provides that a limited liability single shareholder company shall be formed by one member.
The reason that was given by the Minister for trade affairs when presenting the Bill to the Parliament in 2011 is that the government wanted to encourage corporification of business and entrepreneurship. Another reason was to enable business persons who wanted to venture into the corporate world singularly to be able to do so. Therefore, the passing of the amendments to the Companies Act 2002, brought hope for budding entrepreneurs.
Any person who is of the age of majority, who is not undischarged by bankruptcy or a disqualified director may set up a one Shareholder Company. Currently, it is not a requirement that a person setting up the company must be a citizen or resident in Tanzania. Therefore, this is an opportunity for national and foreign entrepreneurs who prefer to work alone or do not require business partners to set up their corporations in Tanzania. The process of setting up a one shareholder company is still considered the same as for a private limited company unless otherwise modified by long awaited regulations to regulate the business of a one shareholder company.
By virtue of section 26A (3) of the Companies Act 2002, a single Shareholder Company may be changed to an Ordinary Limited liability Company by admission of new Shareholders. After the number of shareholders has been increased from one to two or more, the company shall cease to be a single Shareholder Company. The Company is required to notify the Registrar of such changes.
One Shareholder company is a hybrid structure where it combines most of the benefits of sole proprietorship and a company form of business. It has only one person as a member who will act in the capacity of a director as well as a shareholder. Thus it does away with the hassles of finding the right kind of co-partners for starting a business as a registered entity. The best part is that legal and financial liability is limited to the company and not the member.
So what’s the issue in Tanzania?
The Companies Act 2002 is silent in many areas which are vital to the management and administration of a single Shareholder Company. Section 26A (5) empowers the Minister responsible for trade to make regulations and rules concerning setting up, management and administration of a one Shareholder Company. It is important to note that the said subsection does not oblige the minister to make those regulations. The word used in the statute is “MAY” make regulations. This means that regulations are made “at the will” of the Minister.
The Companies Act 2002 was amended on 15th June, 2012 when the President assented the Business Laws (Miscellaneous Amendments) Bill. It is almost three years now and no regulations have been made and there are no indicators as to when they will be made available. In the absence of these regulations it is still impractical to establish a single Shareholder Company in Tanzania. Thus, the objectives of the amendments cannot be realized.
There are important matters that need to be addressed in the regulations (Articles) of the single Shareholder Company. These matters are as follows:-
- What will happen if the founding shareholder dies or is mentally incapacitated? In the absence of regulations to this effect, the continual existence (perpetual succession) of the company will depend on the life of its founding shareholder. This will be a great departure from one of the grand principles of company law.
- Another important matter which needs to be addressed is the appointment of a director or directors. How does a shareholder appoint director(s) of the company? Can he appoint himself a director to the company? If yes, how? Is one required to file resolutions with the Registrar or not? These questions are supposed to be answered by the regulations governing a one shareholder company.
- Another disturbing issue is whether a single shareholder company is still obliged to hold Annual General Meetings etc.
- Is it still reasonable to allow every person to establish a company without defining the limits in terms of the number of companies one person may establish or without defining the limit of capital requirements?
These are vital matters to be addressed by regulations otherwise there will be loopholes that may be used by individual persons to avoid or even evade tax. The position in other countries has been made very clear. For example in China, one person is allowed to apply for opening a limited company with a minimum capital of 1,000,000 Yuan and a person is barred from opening a second company of the same kind.
Uganda – the Companies Act (CA 2012)
Private companies must have a minimum of one member and a maximum of 100 members. Public companies must have a minimum of two members but there are no restrictions on the maximum number of members.
One of the reforms in the Companies Act 2012 is an increase in membership of private companies. It increases the number of individuals who may form a private company in Uganda from fifty to one hundred in contrast to the fifty member limit imposed in Tanzania.
In what is a significant introduction, section 4(1) of the Companies Act 2012 permits any one or more persons to form an incorporated company with or without limited liability. This provision now allows the incorporation of a one-person company in Uganda and follows on from the position of the law that has been adopted by jurisdictions such as the United Kingdom. Under the section 186 of the Companies Act 2012, a single-member company is obliged to nominate two individuals, one of whom shall become the nominee director in case of death of the single member and the other shall become alternate nominee director to work as nominee director in case of non-availability of the nominee director.
This is similar to the position in India that since the company is owned by a single person, he or she must nominate someone to take charge of it in case of his or her death or inability. This is a condition precedent for registration. The nominee must give their consent in writing which has to be filed with the Registrar at the time of filing an application for registration of the company. On demise of the original shareholders/director the nominee director will manage the affairs of the company till the date of transmission of shares to legal heirs of the demised member. This provision / regulation solves the first challenge discussed in the case of Tanzania.
The Companies Act 2012 also provides that the High Court may, where a company or its directors are involved in acts including tax evasion or fraud, lift the corporate veil.
Under section 87, a single member company may transfer or allot shares:
- On the death of the single member,
- By operation of law and
- By a single-member company converting into a private company not being a single-member company.
Following the death of a single member, a single-member company may either be wound up or converted into a private company not being a single-member company by the nominee director transferring the shares in the name of the legal heir(s) of the single member within thirty days and then proceed to pass a special resolution for the company’s change of status within thirty days of the transfer of shares.
In case of a transfer of shares or further allotment, the company shall pass a special resolution for the company’s change of status and alter its articles accordingly within thirty days of the transfer of shares. In case of operation of law, the company shall transfer the shares within seven days in the name of the relevant persons to give effect to the order of the court in question or other authority.
A private company may at the requisition of a member hold an annual general meeting and this has the effect of rendering annual general meetings for private companies’ non-mandatory. This is in contrast to the third challenge in the Tanzanian context.
While every company is required to have a secretary, a single member of a company is not obliged to have one under section 187(3).
Under Section 24(7), a private company not being a single member company which has two or more members on the commencement of the Companies Act 2012 shall not become a single member company.
Verdict: The Uganda Companies Act wins out over Tanzania with its increase in the membership of private companies and the regulations making sole shareholding viable
Conclusion
The differing requirements between these two countries and the many idiosyncrasies relating to each, means it is important to acquire expert help to guide companies through what can sometimes be a difficult process when trying to establish a company presence.
It can be safely stated that the Companies Act 2012 ushers in fundamental changes hitherto unseen in Uganda’s commercial sector that were long due. What remains to be seen is the effectiveness of these provisions and its effect on corporations. While key changes introduced under the Companies Act 2002 for companies operating in Tanzania are indeed largely driven by a recognized need to clarify the existing law, and they offer additional protection for those dealing with Tanzanian companies, and for the company itself (and indeed for its creditors) in the event it finds itself in financial difficulty, there is room for improvement in the way of reforms as is evident when compared to progress made by the Companies Act in Uganda.
References
- The Tanzanian Companies Act No. 12 of 2002(Cap 212).
- The Ugandan Companies Act No. 1 of 2012.
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