Company, The word companies have no strictly technical or legal meaning (according to

Stanley, Re1. it may be describe to imply an association of person for some common object or
objects. The purpose or which people may associate themselves multifarious include in
economic as well as non-objects.

The essence of company is that it has a legal personality district from the people who compose it,
that is, the people who have subscribed for shares in the company or have given guarantees to the
company and from the directors of the company. The concept of separate legal personality was
expounded in the case of SALOMON V. SALOMON2 where it held that “ A company is an
independent person with its rights and liabilities appropriates to itself, and that “the motives of
those who took part in the promotion of the company are absolutely irrelevant in discussing
what those rights and liabilities are”

3
Lord Justice Lindley define a company as A company is an association of many persons
who contribute money or monies worth to a common stock and employed in some trade or
business and who share the profit and loss arising therefrom . The common stock so
contributed is denoted in money and is the capital of the company. The people who contribute to
it or to whom it pertains are members. The proportion of capital to which each member is
entitled is his share. The shares are always transferable although the right to transfer is often
more or less restricted.

Also Prof. Haney A Company is an artificial person created by law, having separate entity, with
a perpetual succession and common seal

Also according to Section 2 of The Company Act 4 define Company to mean a company formed
and registered under this an existing company.

The above definitions clearly bring out the meaning of a company in terms of its features. A
company to which the companies Act apply comes into existence only when it is registered
under the Act. On registration, a company becomes a body corporate it acquires a legal

1
1906
2
{1897 } AC22
3
Lord Justice Lindley
4
The Company Act {2002}
personality of its own separate and distinct from its members. A registered company is created
by law and the law alone can regulate the modify or dissolve it.

Management of the company

It is the responsibility of directors to manage the company in accordance with Section 181 of the
company Act5. The management of the company is done via Directors is done through meetings
of the board of Directors of is to manage, represent and supervise , as may be necessary, so as to
ensure that the company fulfills its corporate objectives, while seeking to protect the company
general interests and create value for the benefit of all the shareholders.

The requirement of the question is to advise Mtayo and Akida on their potential personal
liability for debts of the company.

In our advice to Mtayo on their potential personal liability for the debts of the company

Matayo will held liable personal for the debts of the company? Liability for the contract
entered into on behalf of the company prior to its incorporation. If a director enter into a contract
on behalf of the company prior to the incorporation of the company, he/she shall be personally
liable for the contract subject to any agreement to the contrary. Section 40(2) 6 of The Company
Law any contract which are being made on behalf of the company at a time when a company
has not being formed the person that enter into that contract will become personal liable. If you
look to the scenario we see Matayo enter in the contract with Sahani when matayo ordered
motor parts, and knowing that the company have not being registered it still formed.

Liability for acting aganst a disqualification order of the court? If a director is a convicted of
an offence regarding the management of the company in his capacity as a director and order
were issued to disqualify him as a director then he shall not enter into any obligation or
arrangement on behalf of the company, then such person (director) shall be personal liable for
all debts of the company. This was elaborated through Section 198(1) of The Company Act
stated that a person is personal responsible for the relevant debts of a company if at any time

5
The Company Act {2002}
6
The Company Act {2002}
(a)in contravention of a disqualification order provided by the court. In our scenario Mr Matayo
have disqualification by the order of the court in last 15 years ago so due to that he lacks the
qualifications to be a director

Akida is responsible personal for debts of company. When a shareholder of the business
provides a personal guarantee on a loan that the company takes out. in that case, when the
shareholders who gave the guarantee will be personally liable if the loan cannot be repaid.
According to the scenario akida guaranteed loan from Mapesa Bank Ltd TZS25,000,000
without use the name of the company. Once a company are being formed and the company
incurs debt or becomes insolvent, the company itself it become responsible for the debts occur in
the company. But the act committed by akida for personal guarantee on a loan that the company
takes out in that akida will became personal liable for the act that have done. This was provided
under Section 3(2 )(c)7of the Company Act, provide that a company not having any limit on
the liability of its members. This section provide elaboration that if the share holders committee
an act the company does not limit for shareholders to be personal responsible.

Liability during liquidation, a director of a company shall be liable during the course of
liquidation if it appear that he/she has misapplied or retained or become accountable for any
money or other property of the company, the Director shall also be liable if he /she is guilty of
any misfeasance or breach of any fiduciary or other duty in relation to the company. Section 382
of the Company Ac. According to the scenario akida was contributed to the debts were the
company occurred, the act of of akida to borrower money to Mapesa ltd without notified the

7
The Company Act{ 2002}
company, that lead the company to wound up for failure to pay the debts to the creditor. In the
time of liquidation the director should be responsible for that act that happen to the company
because akida stand as the director of the company so and as we know that even if the director
can be responsible for the contribution of debts occur in the company.

Akida will be held liable personal for repayment or contribution to the assets of the company
by way of compensation in respect of misfeasance or breach of any fiduciary or other duty. After
an application is made to the court by a liquidator. If you connect to our scenario we see akida
was contribution for the debts where company being claimed by different people. In this
situation the liquidator my file an application before the court against to the person who
contributed for the debts occur in the company if the court ha certify that any share holder in the
company has been contributed should be held responsible for the debts of the company.

The liquidator may in the course of winding up, apply to the court for declaration that any
persons including director who are knowingly parties to the carrying on of the business in the
manner that intends to defraud creditors or for a fraudulent purpose are liable to make such
contributions to the company assets as the court thinks just section 383(1) 8 where directors is
found to be guilty (during liquidation) for carrying on business for fraudulent purposes, they
shall be liable. According to the scenario all directors of the wagumu company has being held
responsible for the debts occur in their company that defraud the creditor for failed to pay the
debts that the company have it.

Therefore when the company has being formed it acquires the status of being a person before the
law, the company when formed can be sued or being sues in their own name. on the issue of
liability to the company the shareholders are separate legal entity with the company. Or in other
name shareholders is unlimited liability for any act occurring in the company. But there have
some condition that read for shareholders to be personal responsible in the company. For
example if the shareholders personal guarantee the loan the company will not held liable,
shareholders should be held liable.

8
The Company Act[2002]