Companies Act 2002 Overview

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Companies Act 2002 Overview*

IntroductionThe Companies Act 2002 (TheAct) although assented to by thePresident on 27 June 2002 onlycame into effect from 1 March2006. The new law repealed theCompanies Ordinance (Cap. 212),1932, an archaic piece oflegislation based on the EnglishCompanies Act 1929, and aims toput in place a relevant and modernlegal framework.

Brevity is not a feature of this Act,which contains 490 sections, 140more than its predecessor. Keyareas of change include in relationto the following:

Accounts and audit

Annual returns (includingrequirement for auditedaccounts to be attached, evenfor private companies)

Companies in distress(including rescue mechanismsfor companies approachinginsolvency, and detailed ruleson the management ofinsolvent companies and onwinding up of companies)

Directors and officers(including age limits, increasedaccountability, increasedregulation and disclosure

(including of remuneration ofindividual directors))

Increased filing fees andpenalties

Meetings and resolutions

Protection of minorityshareholders

Protection of third parties inrelation to companys and itsofficers capacity to act

Protection of investors in listedcompanies

Reduction of share capital

This newsletter summarises someof the salient features of the newAct. This newsletter is a guide andtherefore not a substitute forprofessional advice. If you wouldlike to discuss any of the issues inthis newsletter, please speak to

your usual contact atPricewaterhouseCoopers, or referto the contact list at the end of thisdocument.


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Registration ofcompanies

Following additional provisions

made with regard to registrationof companies:

A proposed companyname can now bereserved for up to 60 dayspending finalisation of theregistration documents(S30).

It is now compulsory toappoint the first companysecretary before

registration (S14, 187).

Particulars of date of birthof directors to be given(S14, 194).

Particulars of otherdirectorships of directorsto be filed with the

Registrar now limited tolast five years (S14),although the register ofdirectors is required torecord particulars of all

other directorships (S210).

A general commercialcompany no longerrequired to list a largenumber of object clausesin its memorandum (S7).

Table A to be annexed tothe companys articleswhere the table is partly orfully adopted by thearticles (S11).

Change of object clauseno longer requires courtsanction unlesschallenged byshareholders (S8).

Reduction in capital nolonger requires courtconfirmation unlesschallenged by creditors(S69 -72).

Change of a companyname now required to begazetted by the Registrar(S31).

New provisions for thechange of privatecompany into publiccompany and vice versa(S8).

In view of substantial changes in

the legislation existing companiesmay wish to consider adopting anew memorandum and articles,either using the Tables providedwithin the Act, or adopting thesepartially.

Company Secretary

Appointment of a companysecretary made compulsory, butno formal qualification

requirement is prescribed (S187).

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Directors

Increased accountability ofdirectors by amplifying theirduties and clearly documentingthem. Previously, directors dutieswere primarily covered bycommon law. The Act codifiesthese duties. In particular, itrequires directors to act in thebest interest of the company, itsmembers and employees andexercise due care, skill anddiligence in all their actions(S181 185).

Appointment of directors of public

companies to be voted onindividually (S192).

A director can now be removedby an ordinary resolutionnotwithstanding provisions to thecontrary in the memorandum andarticles or in any agreement withhim (S193).

Significant disclosurerequirements with regard todirectors including: age,

shareholdings in the company,each directors emoluments,loans, interests in contracts,service contracts, pensions, andcompensation for loss of office(S203 212). Private companiesmay well be concerned at therequirement for public disclosureof confidential information relatingto individual directorsemoluments as opposed to thetotal directors emoluments (aswas required to be disclosedunder the Companies Ordinance).

Prohibitions in relation to directorsincluding prohibition of thefollowing: appointment ofdirectors below the age of 21 andabove 70 (S194-195), payment oftax free remuneration or provisionof loans to directors andconnected persons (S199 -200).

Accounts and audit

Books of account are required tobe preserved for six years fromthe date on which they are madeup (S 151). (This is a year longerthan the record keepingrequirement in terms of theincome tax and VAT legislation.)

Directors now required to prepareindividual company accounts aswell as consolidated groupaccounts, both of which will showa true and fair view in accordancewith the generally acceptedaccounting practices and NBAA

regulations (S154).Directors report to include a fairreview of the changes anddevelopment of the business ofthe company and its subsidiaries(S159).

Auditors report to cover eachcomponent of individual accountsas well as group accounts(balance sheet, profit & lossaccount and cash flow

statement). Auditors to also reportwhether the contents of thedirectors report are consistentwith those in the accounts(S161).

Scope of the auditors reportexpanded to included specificdisclosures required on non-compliance with certain matters.These include confirmation on thefollowing: whether properaccounting records have beenkept and proper returns receivedfrom the branches, whether theaccounts are in agreement withthe accounting records andbranch returns, whether auditorshave obtained all the requiredinformation and explanations, andwhether accounts includedisclosures on emoluments andbenefits of directors as requiredunder section 206 (S163).

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The time limit within which thedirectors are required to lay thecompanys audited accountsbefore the company in generalmeeting is now 7 months from the

end of the companys accountingperiod in case of a publiccompany, and 10 months in caseof a private company (S166).

Certain companies are exemptedfrom audit but only dormantcompanies are likely to qualify inview of a ridiculously lowthreshold: annual turnover belowShs 1.5 million and gross assetsbelow Shs 750,000 (S171).

A certified copy of the auditedaccounts, directors report andauditors report is now required tobe delivered to the Registrarexcept where the company isexempt (under S171) from therequirement to appoint an auditor(S167).

Every director of the companyshall be liable to a daily fine (asyet unspecified) for any delay inlaying the accounts before thegeneral meeting and delivering acopy to the Registrar. In case ofnon-compliance with thisrequirement any member, creditoror the Registrar may serve anotice on the directors to makegood the default within 14 days,failing which they may approachthe court who may issue an orderwith costs specifying the deadlinefor compliance (S167).

Special notice required forappointment of an auditor otherthan retiring auditor, filling of acasual vacancy and removing anauditor (S174).

Any officer of the company givingfalse information to the auditor isliable to imprisonment or fine orboth (S176).

Resignation of auditors noteffective unless given in writingand contains a statement of

circumstances giving rise to theresignation (S177, 179).

There is a requirement for foreigncompanies operating in Tanzania

to file accounts within 3 monthsafter the date to which suchaccounts are made out (S438).In practice such a requirement islikely to prove too challenging.

Dividends

S180(3) provides that a dividendcan be paid out of (a) realisedprofits less ..realised losses, or(b) ... realised revenue profits less

...revenue losses, whetherrealised or unrealised, providedthe directors reasonably believethat immediately after thedividend has been paid thecompany will be able to dischargeits liabilities as they fall due, andthe realisable value of thecompanys assets will not be lessthan the amount of its liabilities.Although the terms realised andunrealised are not defined in theAct, it would appear that the aim

is not to move from an accrualbasis of accounting but rather toexclude as appropriate the impactof valuation adjustments.

Annual return

Date of return de-linked fromAnnual General Meeting (AGM).The return date is now (a) theanniversary of the companysincorporation, or (b) if the

previous return delivered wasmade up to a different date, thenthe anniversary of that date(S128). The filing deadline is 28days from the return date.

Details of the principal activities ofthe company, name of thesecretary and dates of birth of thedirectors to be given (S129).

A certified copy of the auditedaccounts together with auditorsreport and directors report to be



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annexed to the return (even forprivate companies) (S132, 167).

Given the low threshold forexemption from audit, in practice

all companies are in principlerequired to comply with thisrequirement. This does beg thequestion whether the Registrarwill have the room to accomodateall this material. A number ofprivate companies will also beconcerned at the implication ofpublic disclosure of confidentialinformation. Note that anymember of the public can carryout a company search for anominal fee of Tshs 2,000 andobtain copies of any or alldocuments filed with the companyregistry.

Maintenance ofcompany records

Statutory books and any otherrecords required under the Act(including books of account) maynow be maintained in a form otherthan bound books including inelectronic form provided adequateprecaution is taken againstfalsification and facility of retrievaland reproduction in paper form isavailable (S468-469).

Filing fees andpenalties

Registration and filing fees haveincreased significantly in

percentage terms, howeverabsolute values are still relativelysmall. Registration fee is cappedat Tshs 300,000 for companieswith share capital of more thanTshs 30 million. The fee for filing adocument is Tshs 15,000 and thelate filing fee is Tshs 1,500 permonth or part thereof. For foreigncompanies these fees are set atUS$150 and US$15 respectively.

We understand that theCompanies Act (Punishment ofOffences) Regulations 2003 made

under S473 are still in draft, anddo not quantify the fine or otherpunishment. In the absence oftransitional provisions, it is notclear whether the fines and

punishment under thepredecessor legislation still apply.

Protection of investorsin listed companies

Following provisions made torecognise and support the role ofthe Capital Markets andSecurities Authority (CMSA) (S46-53):

Detailed provisions maderegarding offer documentsand its contents andapproval by CMSA;

Fines and punishment fordirectors and professionalsgiving false information inan offer document mademore severe;

Memorandum and articles

of an open-endedinvestment company nowneeds to be approved byCMSA (S14(5))

Requirements forallotment pursuant to anoffer document now to beprescribed by CMSA.

Protection of minorityinterests

Any member of a company cannow make an application to thecourt for its intervention or forpermission to start a derivativeaction on behalf of the company ifthe affairs of the company arebeing conducted in a mannerwhich is unfairly prejudicial to theinterests of the members in

general or the minority inparticular (S233, 234).

Protection of thirdparties

Third parties dealing with acompany in good faith need notreview the companysmemorandum and articles orcheck on the powers of thedirectors. Doctrine of constructivenotice and doctrine of ultra-viresno longer applicable in suchcases (S35 38).

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Monitoring company affairs

Much more extensive powers ofinvestigation and mechanisms formonitoring the affairs of a company(S215 228). The power of inspectorshas been extended to cover enquiriesinto: related companies (S219), the trueownership of a company (S225), foreigncompanies (S228). There are alsoprovisions in relation to punishment fordestruction of documentary evidence(S226) and to save advocates andbanks from disclosing client/ customerconfidential information (S227).

Companies in distress

New provisions introduced in relation tocompanies, which are insolvent orapproaching insolvency as follows:

Directors of an insolventcompany may (i) enter intovoluntary arrangements with itscreditors for satisfaction of itsdebts (S240) or (ii) may apply tothe court to make orders for itsmanagement (S247) to forestalla possible creditor petition forwinding up.

Affairs of an insolvent orimpending insolvent company tobe managed only by a qualifiedinsolvency practitioner,administrator, liquidator oradministrative receiver (S236).

During the insolvencyprocedures the supply of utilitieslike gas, water, electricity may

not be interrupted (S239).

Overall, the focus is to prioritise arescue-based approach and makewinding up a last resort.

Liquidation, winding upand dissolution

More detailed provisions made toregulate winding up and liquidation of

companies.

Any director or the secretary of adormant company may now requestthe Registrar to strike off the company(S 400).

Provisions for employeeson cessation or transfer ofbusiness

A company is now empowered to makeprovision for the benefit of itsemployees in the event of cessation ortransfer of its business (S464).

Regulation of banking andinsurance companies,certain societies andpartnerships

The Act applies to banking andinsurance companies except to theextent modified or excluded by theBanking and Financial Institutions Act,2006 (which replaced the 1991 Act)and the Insurance Act, 1996 or anystatutory modification or enactmentthereof (S460).

Insurance companies and deposit orbenefit societies to file with theRegistrar periodical statements in aprescribed form prior tocommencement of business andsubsequently twice a year on specifieddates (S461). A copy of this statementto be exhibited at every office andplace of business of the company.Every member and creditor of thecompany is entitled to receive a copyof this statement.

Prohibition on formation of a businesspartnership or association consisting ofmore than 20 persons. However, thisprovision will now not apply to thepractising solicitors, accountants andmembers of the stock exchange(S463).



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This publication is provided by PricewaterhouseCoopers Limited for information only and does not constitute the provision of professional advice of any kind. The information provided herein should not be used as a substitute for consultation with professional advisers. Before making any decisions or taking any action, you should consult a professional adviser who has been provided with all the pertinent facts relevant to your particular situation. No responsibility for loss occasioned to any person acting or refraining from action as a result of any material in the publication can be accepted by the author, copyright owner or publisher.

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Companies Act 2002 Overview