The laws in Tanzania allow a company to be established by one person as a single shareholder. A Single Shareholder Company is a type of company which has limited liability and limits the number of its shareholder to one person. The setup of a single shareholder company was introduced in the year 2012 by the Business Law (Miscellaneous Amendment) Act No 3 of 2012 (hereinafter the Act) which amended section 18 of the Companies Act [Cap 212 R.E 2002].
A further step was taken in the year 2014 when the Minister for Trade enacted The Companies (Limited Liability Single Shareholder Company) Regulations (hereinafter the Regulations) to provide for, among others, the establishment and management of a Single Shareholder Company. This article describes some unique and important aspect of the law governing a single shareholders company in Tanzania as highlighted below:
A. Name of a company: It is mandatory for the name of a single shareholder company to include a phrase “Limited Liability Single Shareholder Company” as last words in its name as per Regulation 4 of the Regulations.
B. Officers of a company: The law compels a single shareholder company to have at least two officers, one of whom must be a director and a sole director is prohibited from being a company secretary pursuant to Regulation 6 of the Regulations.
C. Conversion of a company: A single shareholder company can be converted into a public or private company under Regulation 7(1) of the Regulations. Further, a Single Shareholder Company is prohibited from issuing share to the public or register any share in the name of two or more persons to hold one or more shares jointly as stated under Regulation 8(2). Equally It is also prohibited for a private or public company to convert into a single shareholder company under Regulation 8(1) of the Regulations.
D. Meetings: The quorum for a single shareholder company shall be constituted by one member present in the meeting or by a proxy under Regulation 9(1) of the Regulations. In addition to that, a member in the general meeting is required to provide written records of the decisions (if no resolution) to the company and notify the registrar as per Regulation 9(2) of the regulation.
E. Lifting Corporate Veil: A single shareholder member of a company shall be personally liable for all unlawful act committed in relation to the company as specified under Regulation 10 of the Regulations. This means that the corporate veil can be lifted and a single member can be held liable for all illegal acts committed in the conduct of company’s business.
F. Winding up of a single shareholder company: Section 275 (2) of the Companies Act [Cap 212 R.E 2002] vests a district or resident magistrate court with original jurisdiction to wind up a duly registered single shareholder company unlike other types of companies where the jurisdiction to wind up is solely vested with the High Court.
G. Director’s appointment and removal: The law has exempted the application of the provision of the Companies Act [Cap 212 R.E 2002] on requirement and procedure for appointment and removal of directors as stated under Regulation 11(1) of the Regulations. Furthermore, Regulation 11 (2) of the Regulations requires a sole member who is a sole director to declare his interest to himself in the contract.
H. Perpetual succession: It is a requirement under Regulation 13 (1) of the Regulations to appoint a nominee director and alternative director to manage the company in case of death of a sole member who is also a sole director. The alternative director is to handle the affairs of the company where the nominee director is not available. As the position stands in India, the law requires a single shareholder to state a name of a person who, in the event of death of a single shareholder, shall become a subscriber (member) of the company.
Noticeably, the law on single shareholder company in Tanzania seems to be missing some important aspects such as whether or not it is possible for a single shareholder company to be formed by any person without regard to his citizenship or residence. Secondly, it does not state whether a single shareholder has to subscribe to all the shares or not. In other jurisdictions, the law has clearly provided for ceiling on the share capital for a single shareholder company and stated that the company’s capital shall be paid in full upon the establishment of the single shareholder company.
Largely, a single shareholder structure of a company provides the opportunity for investors to have a company without the need to hassle for finding another shareholder. Similarly it creates ease in making decisions of the company as a single shareholder can make all the decisions on his own without any other person’s approval or vote. Most importantly, a single shareholder company affords a sole persons in business to trade with limited liability unlike a sole proprietor who has unlimited liability.
The practice of single shareholder company is highly awaited in Tanzania as it is expected that it will encourage and enable single entrepreneurs and sole proprietors to formalize their business in the corporate space. Surprisingly, seven years after the passing of the Regulations, the Registrar of Companies has not yet established a register of limited single shareholder company as required by Regulation 16 of the Regulations. The absence of the registry at BRELA for one Shareholder Company makes it impossible to establish and operate such type of company in Tanzania.
Fatma Haruna Songoro & Hemed Kaniki,
Victory Attorneys & Consultants,
IT Plaza Building 1st Floor,
Ohio Street/Garden Avenue,
P.O. Box 72015,
Dar es Salaam, Tanzania.
+255 752 089 685