Key Highlights

• A company can pay someone in shares instead of cash for their skills, expertise or services rendered to the company. This is referred to as the payment of shares in kind.
• Board resolutions recording the allotment of shares in consideration of technical expertise, experience or business services are valid and enforceable, even where formal documentation is incomplete.
• Non-compliance with the procedural conditions for allotting shares otherwise than for cash attracts a default fine under Section 57(3) of the Companies Act and it does not, by itself, invalidate or render the allotment void.
• Although BRELA/Registrar records are not conclusive proof, they are official statutory records of significant evidential value. Such entries constitute relevant and persuasive evidence of shareholding unless displaced by cogent evidence to the contrary.
• The consequences of procedural non-compliance fall on the company and its officers, not on the shareholder who benefited from a lawfully Board resolved allotment.

A: Introduction

This article examines a recent Court of Appeal decision in S.E.C (East African) Co Ltd & 4 Others v. Gabriel Ponsiani Makundi (Civil Appeal No. 239 of 2024) [2026] TZCA 815 on the allotment of shares for payment of shares in kind in a private company. Crucially, it sets out what the case means in practice for companies that reward expertise, services or skills with equity rather than cash.

For the purposes of this article, the term “allotment of shares” is defined as the process by which a company issues and assigns its authorized shares to shareholders. A company can raise its share capital in various ways, including allotting shares to fund the expansion of its operations. Allotment may be made for cash, whether fully or partly paid or for non-cash consideration (“in kind”), which may include the provision of technical or professional skills to the company. The Companies Act, Cap. 212 [R.E. 2023] (“the Act”) governs the allotment of shares under sections 54 to 57.

Allotment of shares in a private company is comparatively flexible and is governed principally by the company’s Memorandum and Articles of Association (“MEMARTs”). While the specific restrictions vary from company to company, every allotment must comply with the procedure and safeguards set out in the company’s MEMARTs and must ultimately be registered with the Business Registration and Licensing Agency (“BRELA”).

In a significant judgment that emphasized the importance of corporate constitutional documents and legal compliance, the Tanzanian Court of Appeal (CAT) dismissed an appeal related to a disputed transfer of shares in a private company. The Court of Appeal (CAT) in Trace Associates Limited & Others v. Rosemary Tryphone (Civil Appeal No. 435 of 2023) [2025] TZCA 848, held that companies must strictly comply with their MEMARTs and the Companies Act when altering shareholding or directorship, and on that basis declared a purported share transfer invalid.

Barely a year later, in the landmark case of S.E.C (East African) Co Ltd & 4 Others v. Gabriel Ponsiani Makundi (Civil Appeal No. 239 of 2024) [2026] TZCA 815, the Court returned to shareholder disputes. This time, the Court faced a different question. The question is, what happens when shares are allotted for something other than cash? This case forms the integral analysis of this article. The Court upheld a shareholder’s claim to 4,512 shares, including 3,000 shares allotted purely in recognition of his professional expertise, offering welcome clarity for founders who structure their equity around skills and services rather than cash alone.

B: Facts of the Case

The case revolved around a dispute over the ownership of shares in a company, S.E.C (East African) Co Ltd (the 1st Appellant). The 1st Appellant was incorporated in 2006, whereby the Respondent was a co-founding shareholder holding 300 ordinary shares of the company’s 10,000 authorized shares alongside the 2nd Appellant. His technical expertise in the lift and escalator industry secured the company its professional licenses. In recognition of this, the Board resolved in July 2006 to allot him a further 3,000 shares without cash payment as consideration for his expertise and industry connections. He later paid TZS 15,120,000 for an additional 1,512 shares, bringing his total holdings to 4,512 shares (30%). In late 2021, without notice, his directorship was revoked, and in 2023, the other shareholders attempted, through BRELA’s online system, to reduce his shareholding to a mere 60 shares. He petitioned the High Court for unfair prejudice since the affairs of the Company were being conducted in a manner unfairly prejudicial to him. The High Court found in his favor, declaring him the lawful owner of the 4,512 shares, ordering his reinstatement as a director, and holding that the conduct of the other shareholders had been unfairly prejudicial to him and to the company’s affairs. Dissatisfied, the appellants challenged the decision before the Court of Appeal.

C: Court of Appeal’s Analysis and Decision

The Court of Appeal, exercising its power as an appellate court to re-evaluate evidence as provided under Section 6(1) and (2) of the Appellate Jurisdiction Act, Cap. 141, R. E. 2023, conducted a thorough analysis:

1. The Court held that the 3,000 shares allotted “in kind” were validly allotted, notwithstanding that the procedural conditions under Section 57 1 (b) of the Act – a written contract of title, a contract of service or consideration, and registration by BRELA – had not been fully complied with. Section 57(3) of the Act provides that default in complying with these procedural requirements merely attracts a fine on the officer in default and does not invalidate the allotment.
2. The Court found the Board minutes of 6 and 12 July 2006 unequivocal. The respondent was allotted 3,000 shares in recognition of his expertise, which were to be issued without cash payment. The appellants’ records further acknowledged that the respondent held 4,512 shares. Therefore, his ownership was not established by his evidence alone but was corroborated by the company’s internal records.
3. On the disputed share value, the Court found no evidence that a proposed increase to TZS 250,000 per share was ever lawfully approved and registered. Therefore, the original TZS 10,000 par value governed, meaning that the respondent’s payment fully covered the 1,512 shares claimed.
4. The Court reaffirmed that BRELA records, while not conclusive proof of payment, are official records carrying relevant and persuasive evidential weight on a company’s shareholding, standing unless displaced by cogent evidence and unproven allegations of forgery could not do so. BRELA records can only be challenged upon cogent proof that the person who effected the changes had no authority to do so and that fraud or forgery was involved.

D: Impact of the Judgment on Tanzania’s Corporate and Commercial Law

1. Payment for shares in kind is enforceable – Boards allotting shares for expertise, services, or connections rather than cash should ensure that the resolution clearly records the consideration given, the number of shares allotted, and the beneficiary. For full compliance, the company should also prepare a written contract evidencing the allottee’s title to the shares (duly stamped) and file a return in Form No. 57B of the Companies (Forms) (Amendment) Rules, 2026 (G.N. No. 82 of 2026), stating the number and nominal value of the shares, the extent to which they are paid up, and the consideration given. A share certificate should then be issued to the allottee within 60 days. This case confirms that even when these formalities are incomplete, a genuine, board-sanctioned allotment will still stand.
2. Non-compliance in the allotment of shares attracts a fine – Companies should still comply fully with Section 57(2) of the Act to avoid officer liability but shareholders need not fear losing shares already lawfully resolved simply because the company’s paperwork trailed behind.
3. Keep the company’s BRELA records – Discrepancies between a company’s internal resolutions and its BRELA filings invite disputes. Regularizing the register of members promptly at BRELA protects both the company and its shareholders. For an allotment of shares other than for cash, BRELA requires a valid, properly signed board resolution and a duly completed Form No. 57B, and the allottee’s particulars, including the National ID or passport for foreign allottees. The notification to the Registrar of Companies is filed through the BOS system, which automatically generates a consolidated form to be submitted along with the other documents.
4. Attempts to unilaterally alter shareholding via BRELA without board authority will not succeed if the shareholder’s documentary trail of board minutes, payment slips, and share certificates remains intact.
5. Read together with the case of Trace Associates, this judgment draws a useful line: strict MEMARTs compliance is essential for transfers of shares between existing members, while allotments for non-cash consideration are governed by the more forgiving default-fine regime of Section 57. This distinction should be firmly kept in mind by directors and company secretaries. Hence, while procedural default under Section 57(3) does not invalidate the allotment, the underlying allotment must still derive validity from a sound corporate act, meaning a validly constituted Board Meeting which passes a resolution. Thus, the absence of a board resolution would be fatal, whereas failure to file Form 57B is merely a penalty.

E: Conclusion and Author’s Remarks

In today’s business environment, where companies require skills, technical expertise and services, a company may issue shares for non-cash consideration in respect of the services rendered. Such an allotment of shares needs to be properly sanctioned and approved by the Board of Directors through duly convened meetings and resolutions. This safeguards the interests of shareholders and the company against unfair prejudice claims and ensures compliance with the corporate regulatory regime. S.E.C (East African) v. Makundi confirms that Tanzanian courts will honor genuine, board-sanctioned equity interests for non-cash consideration arrangements, provided they are properly documented and undisturbed by any lawful rescinding resolution. For growing companies that reward expertise with equity, the lesson is simple: resolve it properly, minute it clearly, and file it promptly at BRELA.

DISCLAIMER

This article is not intended to offer legal advice but rather to provide general information on the subject matter discussed. It does not constitute, and should not be relied upon as, legal advice. Victory Attorneys & Consultants explicitly disclaims any responsibility for any loss that may occur if this article is relied upon without first seeking professional advice from our legal experts. Individuals should consult qualified professionals for tailored legal guidance related to their specific circumstances.

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