Key Highlights:

• The Company’s Memorandum and Articles of Association are the “constitution” and compliance with their procedures is mandatory, not optional.
• The official records maintained by the Business Registrations and Licensing Agency (BRELA) provide the primary and most reliable evidence of a company’s shareholding and directorship structure.
• A party alleging a transfer of shares bears the burden of proving that the transfer complied with both the company’s Articles and the law.
• Prolonged non-compliance with filing annual returns and updating statutory records can severely prejudice a party’s case when claiming ownership changes.

A: Introduction

In a significant judgment that emphasizes the importance of corporate constitutional documents and legal compliance, the Tanzanian Court of Appeal (CAT) recently dismissed an appeal related to the disputed transfer of shares in a private company. The Court of Appeal (CAT) in TRACE ASSOCIATES LIMITED & 2 OTHERS VS. ROSEMARY TRYPHONE (CIVIL APPEAL NO. 435 OF 2023) [2025] TZCA 848 reminded that companies must strictly follow their Memorandum and Articles of Association (MEMARTS) and the provisions of the Companies Act, 2002 (now R.E. 2023) when changing shareholding and directorships.

B: Facts of the Case

The case revolved around a dispute over the ownership of shares in a company, Trace Associates Limited, incorporated in 1997, where the Respondent was a founding shareholder holding 200 shares alongside her late father and another individual. Following her father’s death in 2002, the Appellants claimed that the Respondent had transferred her shares to the Second Appellant in 1998 and that the deceased’s shares were transferred to the Third Appellant in 2006. However, an official search at the Business Registrations and Licensing Agency (BRELA) in 2022 conclusively showed that the original shareholding structure remained unchanged, with no record of these alleged transfers ever being registered, leading the Respondent to file a petition alleging unfair prejudice and seeking a declaration of her rightful ownership.

The High Court ruled in favour of the Respondent, finding no evidence that the alleged share transfers were ever properly transferred and registered or that the procedures in the Articles of Association were followed. The Appellants appealed to the Court of Appeal on the single ground that the trial judge erred by ignoring the Deed of Transfer from 1998.

C: Court of Appeal’s Analysis and Decision

The Court of Appeal, exercising its power as an appellate court to re-evaluate evidence, conducted a thorough analysis:

1. The Court of Appeal cited Section 74 of the Companies Act, which states that shares are transferable in the manner provided by the company’s Articles of Association. It then meticulously examined Article 15 of the Trace Associates’ Articles, which outlined a strict procedure for share transfers. This included: the right of first refusal for existing members; the requirement for a member to give written notice to the board of directors of the company to act as an agent for the sale; and a process for price determination and apportionment of shares among existing members.

2. The Court of Appeal held that the Deed of Transfer alone was not conclusive proof of valid transfer. The Appellants failed to provide any evidence, such as board minutes, notices to other shareholders, or proof of price determination, to show that the intricate procedure mandated by Article 15 was ever followed.

3. The Court of Appeal found the official BRELA search to be compelling evidence. It showed that for over 20 years, the company’s statutory returns and register of members had not been updated to reflect alleged transfers. The Court reasoned that if a valid transfer had indeed occurred in 1998, the Appellants had a statutory duty under Sections 77 and 79 of the Companies Act to register the transfer and update the register of members, which they never did.

4. The Court of Appeal concluded that the entire process was “fatally flawed” due to non-compliance with the Articles of Association. It emphasized that conforming to the Articles “is a must and not an option.”Consequently, the Deed of Transfer was declared invalid, not binding, and unenforceable.

D: Impact of the Judgment on Tanzanian Commercial and Corporate Law

This judgment has several profound implications for corporate law and practice in Tanzania as follows:

1. The judgment underscores that companies cannot operate on an informal basis. Directors and shareholders must carefully follow the internal governance rules as outlined in the Articles of Association and Companies Act.

2. The judgment cements the status of BRELA’s official records (especially the Online Record System – ORS) as the definitive source of truth for corporate identity. Any purported change that is not reflected in BRELA’s records will be viewed with extreme skepticism by courts.

3. The judgment provides a clear roadmap for legal practitioners and company secretaries on the steps required for a valid share transfer, moving beyond the mere execution of a deed to encompass the full procedure in the Articles and subsequent registration.

4. The decision acts as a robust shield for minority shareholders against attempts to surreptitiously dilute or extinguish their ownership rights without due process.

5. The Court’s questioning of the 24-year delay in regularizing the share transfer signals that prolonged non-compliance with statutory filing obligations will heavily weigh against a party’s credibility.

E: Conclusion

The Court of Appeal’s decision in Trace Associates Limited v. Rosemary Tryphone is a landmark victory for corporate transparency and the rule of law in business practices. It sends an unequivocal message to companies and their advisors that the foundational documents of a company are sacrosanct, and that adherence to statutory procedures is not a mere formality but a legal necessity. This judgment will undoubtedly serve as a key precedent for years to come, guiding companies toward better governance and protecting shareholders’ rights, especially in the share transfer process.