Key highlights

• The law shall permit the price discount of the company transaction
• The discount must be subject to the prior authorisation of the general meeting’s resolution
• At least one year must have passed since the company commenced its business
• The resolution passed in a general meeting of the company to issue shares at a discount must be sanctioned by the court.
• Shares at a discount must be issued within one month of the date on which the issuance is sanctioned by the court.

Introduction

The issuance of shares at a discount is legally permissible in Tanzania. However, it is highly discouraged in practice, as it tends to undermine the company’s capital structure and may mislead investors who wish to invest in the respective company. The issuance of shares at a discount occurs when a company issue shares at a price lower than their nominal value. In Tanzania, the High Court is vested with the supervisory role of permitting the issuance of shares at a discount as an exception.

Therefore, the High Court’s role in sanctioning the issuance of shares at a discount is generally to act as a regulatory safeguard to ensure that such actions, which are otherwise prohibited to protect capital maintenance, are justified, transparent, and do not unfairly prejudice existing shareholders or creditors. 

Recently, the High Court of Tanzania (Commercial Division) delivered its ruling in the case of Mwalimu Commercial Bank vs Business Registrations and Licensing Agency (BRELA) and the Attorney General, Miscellaneous Commercial Cause No. 00021897 of 2025. In this case, the High Court clarified the powers of the Court in sanctioning shares at a discount rate. In this case, the High Court exercised its role in sanctioning shares at a discount and clarified the implications of the rights issue of shares at a discount and the criteria for the Court to sanction issues at a discount. 

Facts of the case  

The Applicant, Mwalimu Commercial Bank, is a registered company under the Companies Act, [Cap 212 R.E 2025] and is licensed by the Bank of Tanzania as a commercial bank to engage in financial services. The Applicant, in its Annual General Meeting of its shareholders, passed a resolution to increase its share capital to strengthen the financial position of the company and attract new investors. The mode that could be used to increase the share capital of the company was by selling the shares at a discount, as provided by the company’s articles of association.

Subsequently, the Applicant filed an application before the Court seeking the sanction of the Court’s sanction to sell shares at a discount. The High Court found the application to be meritorious and subsequently granted the application with all reliefs sought thereto.

The High Court’s analysis and ruling

The High Court of Tanzania (Commercial Division), in exercising its power to sanction shares at a discount in a company, conducted a thorough analysis

1. The High Court cited section 62 (1) and (2) of the Companies Act. Section 62 (1) of the Act, among others, authorises or legalises the company to issue shares at a discount and 62 (2) of the Act. The Court stated that for the application for the sanction to sell shares at a discount, one must comply with the aforesaid provisions herein.
2. The High Court, in its ruling, stated that the implications of issuing shares at a discount may include diluting the value of the current shareholders’ existing shares. This is because a right offering spreads a company’s net profit over many shares. This arrangement can harm the interests of existing shareholders and creditors.
3. The High Court stated that in granting the application for sanction to sell shares at a discount, the Court must consider all relevant circumstances on a case-by-case basis to ensure the fairness of the proposed discounted issue of shares.
4. The High Court held that the issue of shares at a discount was authorised by the members’ resolution at a general meeting of the company. The Court satisfied itself that the general meeting was conducted in conformity with the Memorandum and Articles of Association.
5. The High Court found that the resolution authorizing the sale of shares at a discount specified the maximum rate of discount at which the shares were to be issued.
6. The High Court found that the Applicant had been conducting business for nine years now, hence, it met the legally prescribed minimum time threshold, whereas the law provides that a company must apply to sell shares at a discount at least after one year since its commencement of business.
7. Furthermore, when a bank issues shares at a discount, the Bank of Tanzania (BoT), as a regulator, must approve the resolution.
8. Lastly, the Applicant has complied with all requirements for the Court to sanction the sale of the shares at a discount by applying to the Court. Consequently, the Court granted the application and made an order sanctioning the issue of 185,474,760 ordinary shares for TZS 110 per share at a discount, as authorised by the special members’ resolution passed in a general meeting of the applicant company. The Court further directed that shares to be issued at a discount had to be issued within one month from the date of the Court’s order.

The Court’s criticism of the mode of application

Despite the High Court granting the application and making an order sanctioning the sale of shares at a discount, it criticised the mode under which the application was brought before the Court. The application in this case was brought before the Court by way of a chamber summons supported by an affidavit. The Court held that it was not adequate for the application to be filed in such a manner. The application of this nature should be brought by way of a petition to be capable of inviting all interested members of the public. This is because it may have implications for shareholders, creditors, contributories, tax authorities and other stakeholders.

Conclusion

Notably, the Court’s role in sanctioning the sale of shares at a discount in Tanzania is essential to ensure legal compliance, protect existing shareholders, creditors’ interests, and validate the transaction, particularly when dealing with untraceable shareholders or distressed companies. Section 62 of the Companies Act provides judicial oversight, ensuring that the discount, maximum rate, and procedural requirements are met to prevent prejudice and unfairness to existing shareholders.