FORMS OF BUSINESS IN TANZANIA / LEGAL BUSINESS

ENTITIES.

Topic V
 Introduction
• The area of law concerning with companies, partnerships, sole proprietorship and
other business organization bear along some kind of economic activities can be
viewed as business association.
• The main purpose of forming business association is making profits from
undertaking activities. Forms of doing business may include sole proprietorship,
partnership and forming a company.
• Business association membership organization dully registered for commercial
gain. They can formed by persons with common intention for purpose of doing
business. While performing these duties it may cost time as well as financial to
the association. Business association is divided into two types: Corporate
Business association and Non- corporate business association.
 1.1 Corporate Business Associations
• These are body corporate that acquires legal personality and
incorporated by the Companies Act. Corporate business associations
simply means the group of people authorized by law to act as
fictitious person having a continuous existence independent of the
existences of its members, powers, rights, duties and liabilities distinct
from of its members.
• In Tanzania corporate business association are governed by the
Companies Act Cap 212.
1.2 Non- Corporate Business Association
• These are body corporate that does not have legal
personality e.g. Partnership, Firms, etc. Non corporate
business association are governed by the Law of
Contract Act Cap 345 RE 2019.
 Sole Trade
• This is a form of business association whereby a person is trading in
his/her own account and his own name. sole trade or sole
proprietorship is when a business is owned and controlled by one
person who takes all the decisions, responsibilities and profits from
the business.
• An individual who carries on a business alone is “ sole trader”.
Depending on the nature of the business, sole trader can be assisted
by a bank or employees, agents consultants from experts and others
people or institution.
 Cont.
• Sole trader simply means a type of business enterprise or
proprietorship which owned by one person who is fully liable for a
company debts and fulfillments of contracts with his or her person
wealth unless incorporated. E.g. Juakali Medical Shop
• Whoever a sole trader is trading he must insure that her business
name is registered pursuant to Business Name Registration Act Cap
213 RE 2003.
• E.g Hamad Rashid (owner) trading as TAQWA (Business Name).
• There will be a penalty for carrying on business under unauthorized
name upon conviction shall be a fine.
 Cont.
• Upon fulfill the requirements enshrined under the Business Name
Registration Act, the registrar of companies shall send by post or
deliver the certificate of registration thereof to the firm person
registering and the certificate shall be kept in a conspicuous position
at the principal place of business of the firm or individual.
• A sole trade may be liable for any offence committed on a course of
business and must fulfill all the conditions set for establishment of
business. The procedure for formation of sole propriertship include;
name clearance, name, filling form no.3 for purpose of name
clearance, Pay fees, obtain certificate( Certificate of registration).
 Cont.
• For the purpose of doing business a person need a business
license from Municipal/ City Council, register with TRA to get
Tax Identification Number.
• Sole proprietorship has many advantages and disadvantages
but one among the advantages seems to be easy to set up
and most favored by one man hands that offers household
services and its self employed as the sole owner of business
concerned.
 Sole Trade Advantages
a) The owner has full control over the business and profits and he can use the
money as he deems fit without justifying the spending to anyone.
b) By having complete control the owner has the power to make changes quickly
due to the fact that there is little or no bureaucracy.
c) Easy to organize e.g. adopt technology, change price, developing idea
depending from demand and supply.
d) As there are no staff on hand, the owner takes all the profit made by the
business and all financial information is kept private.
e) Few formalities of set up and operation. Organizational structure simple the
formalities on registration compare to a public Company.
f) Inexpensive to establish and run a business.
 Disadvantages of a Sole Trade
a) The main disadvantages is that as the owner of the business is solely liable for the
consequences of business failure or any liability e.g injuring a customer damage.
b) Its quite difficult to get larger jobs. This may be due to fact many companies or
corporation doesn’t want to work with one staff or individual when it comes to a
large tender which might take time e.g Constructions of roads.
c) It can also be time consuming following upon tenders that ultimately don’t come
to fruition
d) As businessman you may need to think about what would happen if you as the
business owner become sick or had an accident so you cant work.
e) It is quite difficult to obtain loans/ or source of finance may be difficult to obtain
compare to a large business.
 Partnership in Tanzania
• Section 190(1) of the Law of Contract Act, defines the term Partnership as the
relationship which subsist between persons carrying on business in a common view
of profit sharing. The same section under sub section(2) provides that person who
have entered into partnership with one another are collectively called a “ firm” and
the name under which their business is carried is called firm name.
• A Partnership is association of two or more persons who have agreed to combine
their labour, property and skills for the purpose of engaging in lawful business and
sharing profits and losses between them.
• And the partners forming such association are known as partners. The agreement
to form a partnership is known as the ‘’partnership deed”
• Section 191(1) of the same Act explains that the relationship arises from contract
and not status.
Types of partners in a Partnership
Business
a) A general Partner; these are partner who have unlimited liability in
a firm. A general partner is also commonly a managing partner
which that this person is active in the day to day operations of the
business. Because any partner in a general partnership can act on
behalf of the entire business.
b) Dormant Partner; is a contributor or investor who is not active in
managing the firm and may not be known to the outsiders. A
dormant partner is one who does not take an active part in the
business of the firm.
 Cont.
c) Salaried Partner (Contract Partner); is usually someone whose
interest in the partnership is primarily a fixed salary. May receive a
commission or smaller share of profit but he loses unlikely to share of
the partnership and this fact generally means that the partner will be
taxed as employee.
 Registration of Partnership in
Tanzania
• All firms must be registered according to the procedures
provided by the Business Name Registration Act RE
2002.Section 4 of the said Act provides for every firm/sole
trade or business to be registered to this act.
• After being registered the business name, a firm must
register with TRA and then apply for the licensing from the
relevant municipal authority for business license.
Procedure for registrations as provided by
BRELA
a) The applicant has to fill has to fill form No.2 for partnership and form no.3 for
individuals and form No.1 for Corporations.
b) BRELA conducts a name search
c) Approval or refusal of the application
d) The applicant pay fees
e) Applicant issued with certificate and extract with the applicant can open a
bank account.
• Applicants need to take a letter form name clearance after which the registry
clears it after a search. The registrar must examine the application forms and if
all the requirements were fulfilled by the applicant, then the Registrar will issue
certificate of registration.
 Liability of Partners
• In most Tanzania most firms have unlimited personal liability with
exception of few firms registered as limited partnership. Generally in
limited liability partnership one partner is not liable for misconduct,
negligence or recklessness conduct of another partner.
• General each partner in a partnership jointly liable for partnership
obligation as per section 203 of cap 345.Jointly liability means the
partners can be sued as a group.
• In some states, each partner is both jointly and severally liable for the
damages resulting from the wrongdoing of other partner.
When the firm is liable for wrongs
committed by one partner?
• By the virtue of section 20(1) of Cap 345, where one partner
commits an act which is wrong in itself the firm will be civil
liable for any harm caused, and criminally for any penalty
incurred if either the act was done with actual authority of
his fellow partner or act was within his usual authority in the
ordinary course of the firm business.
 Dissolution of Partnership
• Dissolution of the firm denotes complete breakdown
of the contractual relationship between all the
partners or termination of partnership business. But
when the existing contractual relationship is
terminated and the business continues it is a case of
dissolution of partnership.
 Partnership firm may be dissolved under
following circumstances
a) Dissolution by expiration of term or lapse of time; partnership may
be dissolved when time of agreed by members comes to an end.
For example, a partnership for fixed term, or for a single venture of
undertaking, expires automatically when the term or undertaking
ends. If partner continue working together after this it’s a new
partnership. This situation is covered under section 212(1)(a)(b) of
Cap 345. therefore, the firm may be dissolved with consent of all
the partners or in accordance with contractual terms between the
partners.
 Cont.
b) Dissolution by Notice: Where the partnership is at will, the
firm may be dissolved by any partner giving notice in writing
of his intention to dissolve the firm. The firm is dissolved from
the date mentioned in the notice as the date of dissolution. An
individual partner is empowered to bring an end the firm
when he or she just depending on the agreement between the
parties and genuine reasons provided. Section 212(1) (c), Cap
345.
 Cont.
c) Death or Bankruptcy; Death or bankruptcy of any partner
automatically dissolves the entire partnership, unless
otherwise provided. This can be inconvenient so partnership
agreements often exclude this rule and provide, for example
that the partnership shall continue and that the others shall
buy the deceased or bankruptcy’s share at valuation. Section
213(1) Cap 345.
 Cont.
d) Illegality of the Business; A partnership is automatically dissolved by
any event which makes it illegal to carry on the business as stipulated
under section 214 of Cap 345. In Stevenson Ltd v. Cartonnagen
Industries [1918] A.C. 239, the outbreak of war in 1914 automatically
ended the partnership between a British company and a German firm.
e) Dissolution by order of Court; when the partners have different
opinions regarding dissolution of the firm on certain grounds, a suits
can be filed by any partner in court to dissolve the firm. Depending the
merits of the matter, the court may order for dissolution of the firm.
 Partnership Deed
• The partnership deed is a written agreement signed by all
partners, dully signed and registered. For the agreement to
be valid all essential elements of valid contract must be
observed. And Registration must be done in according to the
prescribed procedures established under the Registration of
the Documents Act Cap 117 and the Business Name
Registration Act Cap 213.
 Contents of the Partnership Deed
• Partnership agreement contains many articles, but most of the time
depends on what partner agreed but at least it may include the
following aspect;
Names of the partners of the firm and their address
 Duration of Partnership
 Capital Contribution of each Partner and aspect relevant to it
introduction of addition capital, drawings that can be made etc.
 Interest to be paid on Capital, Loans given by partners to firm
Aspect relating to salaries, commission etc. to be paid to partners
 Cont.
 The ratio in which the profits and losses are to be shared to
partners.
 Rights and duties inter se among themselves.
 Name of the Banks where the business banking accounts
should be maintained and persons who are vested with the
power to operate the accounts.
 Companies
• A company is an incorporated association which is an
artificial person created by law, having as separate entity,
with a perpetual succession and a common seal.
• It is an association of individuals conducting a commercial or
industrial enterprise. In order for a company to operate
legally it must be registered (incorporated) according to the
law of a particular country relating to companies.
Definition and Nature of the Company:
Statutory
• According to s. 2 of the law relating to companies in Tanzania is the
companies act, cap 212 of 2002,
A company formed and registered under this Act or an existing
company.
• To be appropriately constituted as a company, any association must
undergo two processes namely “formation” and “registration” under
Cap 212 for a newly formed company. Otherwise it should have been
“formed” and “registered” under any other law, thus, the term
“existing company”.
 TYPES OF COMPANIES
• Section 3(2) of the Act provision is made for the types of
companies that can be lawfully formed in Tanzania. On
basis of transferability of shares, companies are divided into
two categories.
 Private Company
 Public Company
 Private Company
• A private company is a company held under private ownership with shares
that are not traded publicly on exchanges.
• Private companies are normally formed by persons with prior relationship
other than only business relationship e.g., Father and sons and or
daughters, friend etc. The minimum number of membership is two and
maximum is fifty. The shares of these companies are not freely
transmissible.
• According to s. 27 (1) of the Companies Act talks about Private Company.
The registration fees for a small private company in Tanzania depends on
the authorized share capital and can range from TZS 95,000 to TZSs
440,000.
Basic Characteristics of Private
Companies
• Restricted membership section 27(1)(b) Cap 212 limits the
number of its members to fifty. In determining this number of
50, employee- members and ex employee members are not to
be considered.
• Restrict right of member to transfer its share section 27(1)(a)
of Cap 212
• Prohibit any invitation to Public to subscribe to any share of
the Company
 Public Company
• Public Company in Tanzania is one whose shares are
available for trading to the people. To form such a company,
at least 2 directors and 7 shareholders (one of whom must
be a Tanzanian national with a minimum 40% stake in the
company) are required.
• And examples of Public companies are NMB Bank, Tanesco,
Precision Air Services, TAZARA etc.
 Basic Characteristics of Public
Company
• General public is allowed to subscribe for membership on fulfilling of
few general conditions. The minimum number is seven.
• It can commence business unless it obtain a certificate of commencing
of business.
• The memorandum of Public Company shall state that it’s a public
company.
• Transfer of share is free; under the Companies act a public company
limited by share/ guarantee and having a share capital being a
company, the memorandum of which states that it is to be a public
company.
Company incorporation Process in
Tanzania
• The incorporation process of a company in Tanzania is
currently conducted through the online registration system
(ORS) at the Business Registration License
Agency(BRELA).
• Its important to note that only users who have the Tanzanian
National Identification Number (NIN) are able to access the
ORS services and hence perform the registration.
 Procedure for Company Incorporation in
Tanzania
• The process of company incorporation in Tanzania is
categorized into 3 stages namely: pre-registration,
registration and post registration process. Before
commencing registration it’s important for the
incorporator to note and have the following:
 Cont.
1. National Identification Number (NIN) from National Identification Authority (NIDA).
2. the directors and company secretary must have their NIN;
3. a local natural person will not be registered as a shareholder, director or company secretary
without having a NIN;
4. foreigners must have their Passport;
5. physical address and details about the registered office;
6. Taxpayer Identification Number (TIN). A Tanzanian person will not be registered as a director
without having a TIN and neither will a foreigner if not in possession of a passport;
7. Prepared and duly signed Memorandum and Articles of Association (Memarts). The objectives
in the Memarts to be uploaded must be in line with the objectives to be selected through the
ORS; and
8. Physical addresses (including region, district and ward), postal and email addresses and
telephone number of the company secretary and shareholders.
 Registration Process in Tanzania
• This process is usually done online through BRELA. Failure to complete the application
in 5 days, the application will be deleted automatically. The process involves filling in
all the company particulars in the ORS system. The particulars include: –
1. the type of company you want to register i.e. whether it’s Foreign Company, Private
Company Limited, Public company Limited by shares, Unlimited Private Company;
2. company secretary, information of company directors, shareholders information,
company registered office, company general activities, and authorized share capital
details; and
3. uploading of the scanned documents into the online registration system which must be
accompanied by a certified memorandum and article of association and form no 14 (b)
sworn before a commissioner for oaths, duly signed and stamped Ethics Form, duly
signed and dated consolidated form generated by the system
 Cont.
4. Approval (takes 2 to 7 days) and if approved then the system will
generate the control number for payment. If not approved by the
reason of not conforming to the procedure then the incorporator will
be required to edit what is required.
5. Upon confirmation of payment, the final stage is to download and
print out a certificate of incorporation. This certificate is issued by the
Registrar of companies after approving all documents uploaded into the
system. The certificate of incorporation is sent by the registrar
electronically into the registered users account.
 Post Registration Process
1. Obtain  business license
• Before commencing business, the company will also be required to obtain the
appropriate business license. In Tanzania, Business Licenses are issued by two
Authorities namely Business Registration and Licensing Agency for Class “A”
Business Licenses and Local Government Authorities (LGAs) for Class B Licenses
• The business license would depend on the nature of activity the business is
associated with. A general business license can be obtained from the Ministry
of Industry, Trade and Investment (MITI) or the Municipal Council in the
locality which your business would be operating. Businesses in certain sectors
like oil & gas, food & beverage, manufacturing, consultancy, are required to
apply for special licenses or permits
 Cont.
• For registration purposes, one must have these documents in order to obtain a  business
license;
• certified copy of the Memorandum & Articles of Association,
• certified copy of a Certificate of Incorporation/compliance,
• certified copy of a TIN certificate of the company obtained from the Tanzania Revenue
Authority
• certified copy of the Tax Clearance certificate obtained from the Tanzania Revenue Authority
• certified copy of the Lease Agreement or title deed as proof of having a business premise,
• Directors/ Shareholders Passport copies or Copies of National Identity Card. For non-citizen
attach a photocopy of residence permit class ‘A’, In case shareholders of the company are
non-residents power of attorney to citizen/Residence should be submitted/attached
 Cont.
2. Register the notarized lease agreement; If the lease is for five years
and above then registering is mandatory, below five years no need of
registering.
3. Register for social security; Obtaining Social Security Registration
Numbers from the relevant mandatory security scheme. These
mandatory schemes are provided by law and are guaranteed by the
Government in order to provide employees with social security service.
It may either be NSSF for private sector or PSSF for the public sector.
 Cont.
4. Compliance with the required relevant Authority;
Example Tanzania Medicines and Medical Devices
Authority (TMDA),Occupational Safety and Health
Authority (OSHA), Local government Authority.
Registration of a Foreign Company in
Tanzania
• A foreign company as defined under section 433(1) of
Companies Act, may establish a branch office in
Tanzania and the company will be issued with a
Certificate of Compliance by the Registrar. The
required documents to complete the application
process are: –
 Cont.
• a certified copy Memorandum and Articles of association of the
company or other instrument defining the constitution of the
company from the country where the company was formed.
• list of particulars of the directors and secretary of the company as to
residential addresses.
• personal details Tax Payer’s Identification Number (TIN) for one of the
directors Identification;
• a statement of subsisting charges created by the company related to
property located in Tanzania;
 Cont.
• name(s) and address (es) of one or more person(s) resident in Tanzania
authorized to act as the company’s representative;
• address of registered principal place of business and place of business
in Tanzania;
• a copy of the most recent audited accounts.
• copies of Passports if there are foreign directors, shareholders, or
secretary.
 Winding Up
• Winding up refers to the legal process of bringing the
company to an end. The major effect of winding up is the
realization of the company assets for the payment of the
company liabilities.
• In winding up, accounts are settled (such as returning debts to
creditors), corporate assets are liquidated and any
requirements for the corporation to close are taken care of.
 Types Of Winding Up of a Company

• There are two types of winding up of a

company i.e. Compulsory winding up and
voluntary winding up.
 Compulsory Winding Up of a company
• Compulsory winding up is the type of winding up of the company
which involves the court’s intervention in the process of winding
up.  Usually, the court force the company to come to an end by issuing
the order for winding up where it deems fit to do so.
• Compulsory Winding Up of a company is sometimes referred to as
winding up of the company by the court’s order. Section 272 of
Companies Act
• A petition for winding up the company must be filed before the court.
For example, in Tanzania, the court with jurisdiction for issuing a
court order for winding up is the High court.
 Voluntary winding up of a
Company
• Voluntary winding up is the type of winding up of a company
without the involvement of the court.
• This kind of winding up of the company is initiated by the
members of the company or creditors of the company when
the circumstances render it necessary. However, the creditors
usually, resort to winding up the company when the members
of the company have failed to do that.
 Grounds for winding up of a company
• There are several grounds or reasons that may justify the claim by the court,
creditor, or members of the company to wind up the company as follows;
1. When the company fails to pay its debts; When the company is not solvent
enough to pay the principal sum plus the interest to its creditors is justifiable
ground to wind up it.
• This is normally done to rescue the funds that were injected into that particular
company. Therefore to rescue the creditor’s funds, the assets are realized and
the proceeds are used to pay debts that the company owed to creditors.
• The fact that the assets are less than the liability is not sufficient so you have to
go over the balance sheet of the company to justify that it fails to pay its debts.
 Cont.
2. Failure to commence business within one year
after its incorporation; The company law demands
that a company must commence business within one
year since it was incorporated failure to do so attract
compulsory winding up.
• Further, where the company business has ceased for a
period of one year, it is a good ground for its winding
up.
 Cont.
3. Where the members of the company have fallen below the minimum
required number; In Tanzania, It is the requirement of law that, a
company must constitute a minimum number of two members. Thus
failure to abide by this legal requirement is fatal and may subject the
company to a winding-up process.
4. Where there is a Special resolution as to the winding up of the
company; A special resolution is a resolution that is passed by a majority
of not less than three-fourths of company members as, being entitled so
to do.  Therefore when the members pass a special resolution that the
company should be dissolved it must be held regardless of the status of
the company.
 Cont.
5. The number of its member falls below the minimum required is two
(2).