Corporate Governance 2024 Comparisons

There are four principal forms of business organisations in Tanzania, as set out below. 

• Sole proprietorship – a business arrangement owned by one individual that obtains all profit and loss.
• Partnership – the relationship which subsists between persons carrying on business in common as defined with a view of profit. 
• Branch – a foreign company, that is incorporated outside Tanzania, which establishes a place of business within Tanzania.
• Local/subsidiary company – which may be registered in any of the following three forms.
1. Private limited company – a company which by its articles restricts the right to transfer its shares and limits the number of its members to 50. It also prohibits any invitation to the public to subscribe for any shares of the company. A private company may either be limited by shares or limited by guarantee:
1. company limited by shares – a company having the liability of its members limited by the memorandum to the amount, if any, unpaid on the shares respectively held by them; and
2. company limited by guarantee – a company having the liability of its members limited by the memorandum to such amount as the members may respectively thereby undertake to contribute to the assets of the company in the event of its being wound up.
2. Public limited company – a company whose shares are freely transferrable, permits the public to subscribe to its shares and it can have an unlimited number of members. Its memorandum states that it is to be a public company.
3. Unlimited company – a company which does not have any limit on the liability of its members.

The principal sources are the following:

• Companies Act (CAP 212) – a law relating to companies and other associations, to provide for more comprehensive provisions for regulation and control of companies and related matters;

• Law of Contract Act (CAP 345) – an act to provide law relating to contracts;

• Guidelines on Corporate Governance Practices by Public Listed Companies in Tanzania by the Capital Markets and Securities Authority – for observance by public listed companies in Tanzania, in order to enhance corporate governance practices by such companies;

• Banking and Financial Institution (Corporate Governance) Regulations, 2021 – a law that provides standards/guidance for corporate governance and structures of banks and financial institutions;
• Dar es Salaam Stock Exchange Public Limited Company Rules, 2022 (the “DSE Rules”); and
• case law.

The DSE Rules, 2022 provides several requirements for publicly listed companies, including the following.

• ESG reporting constitutes a requirement for continued listing on the DSE.
• There is requirement to submit audited annual accounts, drawn up in accordance with the Companies Act (CAP 212) and prepared in accordance with the International Financial Reporting Standards (IFRS) or other standards as may be prescribed by the National Board of Accountants and Auditors (NBAA) and independently audited in accordance with the International Auditing Standards. A report on ESG as well as sustainability reporting will form part of the annual report.
• Establishment of an audit committee consisting of at least three directors. The audit committee should have adequate resources and authority to discharge its responsibilities.
• Compliance with its dividend policy as set out in the company’s prospectus or as approved by the shareholders during the shareholders general meeting, whenever paying dividends to the shareholders.
• Notifying the DSE of any changes in the directorate, the secretary, auditors and legal advisors and the date of the financial year end.
• Changes to articles of association must conform with the requirements of model articles provided for under the DSE Rules.
• Any information which is notified to the company in respect of the interests (or changes in such interests), including options, whether or not held through another party (corporate or otherwise), of each director, including their spouse and children under the age of 18 years in so far as is known to the issuer, or each holder of 5% or more of the share capital of the company, must immediately be notified to the DSE. The notification to the DSE must include the date on which the transaction amount and class of securities concerned.

Guidelines on Corporate Governance Practices by Public Listed Companies in Tanzania by the Capital Markets and Securities Authority provide the following requirements.

• The board should specifically establish an audit and nominating committee and other relevant committees and delegate specific mandates to such committees as may be necessary. 
• Companies should establish a formal and transparent procedure for remuneration of directors which should be with the approval of the shareholders.
• Every board should annually disclose (in its annual report) its policies for remuneration including incentives for the board and senior management.
• The board should be composed of a balance of executive directors and non-executive directors (including at least one third independent non-executive directors) of diverse skills or expertise in order to ensure that no individual or small group of individuals can dominate boards decision-making processes.
• There should be a formal and transparent procedure in the appointment of directors to the board and all persons appointed or offering themselves for appointments as directors should disclose any potential area of conflict that may undermine their position or service as director. No person should hold more than three directorships in any public listed company at any one time. 
• No person should hold more than two chairpersonships in any public listed company at any one time. 
• There should be a clear separation of the role and responsibilities of the chairperson and chief executive which will ensure a balance of power of authority and provide for checks and balances such that no one individual has unaffected powers of decision- making. Where such roles are combined a rationale for the same should be disclosed and approved by the shareholders.
• There should be shareholders participation in major decisions of the company. The board should therefore provide the shareholders with information on matters that include but are not limited to major disposal of company’s assets, restructuring, takeovers, mergers, acquisitions or reorganisation. 
• The board should provide to all its shareholders sufficient and timely information concerning the date, location and agenda of the general meeting as well as full and timely information regarding issues to be decided during the general meeting. 
• The board should ensure that accounts are presented in line with the Tanzania Financial Accounting Standards issued by the National Board of Accountants and Auditors.
• The board should establish a formal and transparent arrangement for the appointment of independent auditors at each annual general meeting.
• The board of a public listed company should ensure that shareholders’ rights of full participation at general meetings are protected by giving shareholders sufficient information on voting rules and procedures, opportunity to question management, opportunity to place items on the agenda at general meetings and opportunity to vote in absentia.

• ESG reporting has become integral to corporate governance practices. Investors and stakeholders increasingly demand transparency and accountability regarding a company’s environmental and social impact, as well as its governance practices. The Capital Markets and Securities Authority endorsed the requirement of the DSE Rules for all companies listed on the DSE to report on their corporate plans for sustainability. 
• As organisations embrace digital transformation, cybersecurity and data protection has become a critical aspect of corporate governance. With the growth of cyber threats, companies are under pressure to ensure that cybersecurity measures are in place. Data protection is intrinsically linked to cybersecurity and risk management. Companies must be actively engaged in overseeing the company’s cybersecurity measures and assess the risks associated with data collection, handling and processing and the development of contingency plans to address potential data breaches especially following the enactment of the data protection legislation in Tanzania in 2022.

• Reporting on beneficial owners of a company – in 2021, the Companies Act introduced the requirement for companies to submit information on its ultimate beneficial owners to the Registrar of Companies. This requirement is mandatory for all companies incorporated in mainland Tanzania, trusts and partnerships. 

• Quality corporate governance – there has been an increase in requirements to establish standards for corporate governance processes and proper structures. This included the release of the Banking and Financial Institutions (Corporate Governance) Regulations, 2021 by the banking and financial sectors that provide guidance to directors for proper discharge of their fiduciary responsibilities. 

The DSE Rules contain the “Guidelines to Sustainability Reporting”. These guidelines provide a continuing listing obligation for publicly listed companies to take sustainability reporting as an integral part of governance, operating and reporting culture. The guidelines refer to the Global Reporting Initiative as a source for ESG reporting standards and templates and encourages listed companies to consider and provide disclosure on the following matters, where material to their business operations. 

General 

• Sustainability policy and goals, including milestones, plans for achieving goals, and long-term aspirations. 
• Corporate accountability and seniority of decision-making on sustainability issues. 
• Corporate stance on bribery and corruption. 
• Assessment of sustainability impacts, risks or opportunities. 
• Risk management policies and processes arising from environmental and social concerns. 
• Relevant laws, regulations, international agreements or voluntary agreements with strategic significance to the organisation and its stakeholders, including fines, sanctions, prosecution and accidents for non-compliance with environmental laws and regulation.
• Issues and future challenges for the specific industry sector that the company operates in as observed by peers and competitors.
• Performance assessment against stated goals, peers and industry benchmarks.

Environmental 

• Climate change disclosures, eg, business or legal developments related to climate change mitigation or adaptation that may have an impact on the organisation.
• Biodiversity management.
• Environmental management systems. 

Social

• Labour practices and relations, ie, number of female staff in senior positions.
• Diversity and inclusion of minority shareholders and women on the board of directors. 
• Programmes and practices that assess and manage the impacts of operations on communities. 
• Product responsibility policy and practices. 

The bodies that are involved in governance and management of a company include the following.

• The board of directors should have all the powers necessary for managing, and for directing and supervising the management of, the business and affairs of a company.
• The members/shareholders are responsible for the election of directors and approving major corporate actions.
• Company secretary is responsible for ensuring the company upholds the legal requirements of its governing documents and law, ensuring statutory registers are kept up to date, and filing requisite documents with the Registrar of Companies.

The law empowers directors make decisions relating to the governance and management of the business and affairs of the company. However, this mandate is subject to the powers/functions provided for in the constitutional documents of a company and any shareholders’ agreements.

Shareholders are specifically responsible for approving major corporate actions (including any shareholders reserved matters as may be indicated in the constitutional documents) including:

• authorising a change in share capital structure;
• amending the company’s memorandum and articles of association;
• the appointment and termination of directors; and
• the appointment of auditors and winding up of the company.

The decisions of directors/shareholders are made either through the passing of resolutions at members’ or board meetings or by way of passing written resolutions, as may be authorised under the law or the constitutional documents of the company.

There is no legally prescribed structure for the board of directors. The board usually consists of the chairperson, executive and non-executive directors and the managing director/chief executive officer, as the case may be. The structure is usually determined by a company’s organisation chart/management structure, the articles of association, bylaws and any sectoral requirements, as may be applicable.

The roles of each director are dependent on the company’s management structure, operational requirements, articles of association, bylaws and any sectoral requirements. However, usually the chairperson is responsible for chairing the meetings of the board of directors. Executive directors are involved in the day-to-day operations of the company while non-executive directors, who are not part of the company’s daily operations, would offer objective guidance and advice to the company in the management of its affairs.

Generally, composition requirements vary depending on the type of the company as well as the sector in which the business operates. For example, in the banking and financial institutions sector, the board is required to be comprised of not less than five members, two thirds of whom should be non-executive and at least two of the non-executive members should be independent and have requisite experience in banking, finance, accounting, auditing, law or economics; and at least two of the members are required to be Tanzanian nationals.

Public listed companies are required to ensure that the size of the board should be big enough to reflect the range of expertise and not large enough to prevent meaningful dialogue. The board should be composed of a balance of executive directors and non-executive directors (including at least one third independent non-executive directors) of diverse skills or expertise in order to ensure that no individual or small group of individuals can dominate the board’s decision-making processes.

Subject to the requirements under the constitutional documents and any shareholders agreements, directors are elected/nominated by the shareholders and approved by the board of directors. Once directors pass resolutions to approve the appointment of the director and the person has consented to act as a director, the company secretary under the directions of the board will submit documents to notify the Registrar of Companies of the appointment of new director(s).

The removal/termination of directors can be done through any of the following ways:

• voluntary resignation of the director, shareholders passing ordinary resolutions to remove a director, default of directors’ actions or inactions as per the company’s constitutional documents or disqualification order made in court due to statutory reasons (ie, the director has been declared bankrupt by a competent court in Tanzania);
• a person is convicted of any offence in connection with the promotion, formation or management of a company;
• a person has been persistently in default in relation to provisions of the Companies Act requiring any return, account or other document to be filed with, delivered or sent to, or notice of any matter to be given to, the Registrar of Companies, if in the course of winding up a company it appears that a person has been guilty of any offence for which they are liable; and
• the court is satisfied that a person is or has been a director of a company which has at any time become insolvent (whether while they were a director or subsequently), and that their conduct as a director of that company (either alone or taken together with their conduct as a director of any other company or companies) makes them unfit to be involved in the management of companies.

The Companies Act provides for the restrictions on who may be appointed as a director, and this includes a person that has been declared bankrupt and a person whom a disqualification order has been made by a competent court of Tanzania. The additional restrictions are dependent on sectoral requirements, for example in the banking and financial institutions sectors, a person should not simultaneously serve as a board member in more than one bank or a financial institution in Tanzania if there is a conflict of interest, and in public listed companies no person can hold more than three directorships in any public listed company at any one time.

The Companies Act (CAP 212) provides that a director has a duty to declare the nature of any interest at a meeting of the directors of the company where they or any connected person are in any way, whether directly or indirectly, interested in a contract or proposed contract with the company.

A director is further duty bound to act with independent judgment in exercising powers and deciding what is best for the company.

Directors have the following duties in accordance with the law:

• to act honestly and in good faith and in what the director believes to be the best interests of the company;
• to exercise their powers for proper purposes;
• to exercise the care, skill and diligence which would be exercised in the same circumstances by a reasonable person having both the knowledge and experience that may reasonably be expected of a person in the same position as the director and any special knowledge and experience which the director has;
• to give notice to the company of such matters relating to themself as may be necessary of directors’ shareholdings; and
• to disclose interest in contracts.

The directors owe their duties to the company and are required to take into account the interests of its shareholders and the employees of the company.

A breach of directors’ duties can be enforced by the company.

Consequences of a breach of duty includes the removal of director from office, and a competent court may make a disqualification order against a director. In some cases, the court may also order a lift of the corporate veil and hold a director personally liable to a fine or imprisonment.

The liability of a director or officer is limited and protected under the corporate veil in a limited company when they are operating within the scope of their duties and within the law. However, a corporate veil can be lifted and directors made liable upon satisfaction that a director misapplied the money or assets of the company, is guilty of misfeasance and is in breach of a fiduciary or any other duty to the company. Also, a corporate veil is lifted when a company is used to commit fraud and improper or illegal acts.

There are no approvals required in relation to remuneration, fees or benefits payable to directors and officers in private companies. 

There is a restriction on remuneration, fees or benefits payable to directors and officers in the banking and financial institutions sector as a bank or financial institution should not grant a salary advance to any of its officers or employees which exceeds the annual remuneration of the borrowing officer or employee.

The Guidelines on Corporate Governance Practices by Public Listed Companies in Tanzania by the Capital Markets and Securities Authority require directors’ remuneration to be sufficient to attract and retain directors to run the company effectively and should be approved by shareholders. The executive directors’ remuneration should be competitively structured and linked to performance and the non-executive directors’ remuneration should be competitive in line with remuneration for other directors in competing sectors.

It is not lawful for a company to make to any director of the company any payment by way of compensation for loss of office, as consideration for or in connection with their retirement from office, without particulars with respect to the proposed payment (including the amount thereof) being disclosed to members of the company and the proposal being approved by the company in a general meeting.

A company is required to disclose in the annual accounts each director’s emoluments, loans, interests in contracts, service contracts, pensions and compensation for loss of office.

Public listed companies are required to disclose in their annual reports their remuneration policy for the board and senior management.

The relationship between a company and members is rooted in mutual dependency. Members invest capital in a company and the company then deploys the capital to fund its operations. This allows the company and its members’ investments to grow.

The relationship between shareholders and the company is governed by:

• the law;
• the memorandum and articles of association of the company; and
• the shareholders agreement. 

Shareholders are able to direct the management of a company through their mandate to:

• appoint and remove directors;
• decide on what powers are to be granted to directors; and
• review the company’s audited financial statements.

The general meeting that is mandatory to be held by shareholders is the annual general meeting. The law provides that a company must hold an annual general meeting annually or not more than 15 months should elapse between one annual general meeting and the next. Annual general meetings can either be held physically or online, subject to the company’s articles of association.

Any member of a company may make an application to the court by petition for an order on the grounds that the company’s affairs are being or have been conducted in a manner which is unfairly prejudicial to the interests of its members generally or of some part of its members or that any actual or proposed act or omission of the company (including an act or omission on its behalf) is or would be so prejudicial.

A shareholder can, for the purpose of prosecuting, defending or discontinuing an action on behalf of a company, apply to the court for leave to bring an action in the name and on behalf of the company or any of its subsidiaries, or intervene in an action to which any such company or any of its subsidiaries is a party.

Tanzania has recently introduced the concept of filing to the Registrar of Companies information on beneficial owners in a company. The minimum reporting threshold for beneficial ownership is a natural person that ultimately owns or controls the legal person through direct or indirect ownership of 5% or more of shares or voting rights or ownership interest in that legal person and such ownership, ownership interest or control also includes possession of bearer shares, the ability to appoint or remove the majority of board members, the chief executive officer or senior management.

Companies are required to prepare audited financial statements consisting of annual accounts, the directors’ report and the auditor’s report in each accounting period.

There are no mandated disclosure requirements of corporate governance arrangements.

Companies are required to submit annual returns of the company on the company’s return date. They are further required to submit documents to notify the Registrar of Companies in the case of:

• alteration of the memorandum and articles of association; and
• changes in directors, share capital, company secretary and registered office address of the company.

These filings are accessible to the public.

There is also a requirement to submit information and any changes thereto on beneficial owners of the company to the Registrar of Companies. This information is not accessible to the public.

There is a requirement to appoint an auditor, at each general meeting at which accounts are laid, to hold office from the conclusion of that general meeting until the conclusion of the next general meeting at which accounts are laid.

These requirements would be sector-specific, as may be applicable. For instance, the Banking and Financial Institutions (Internal Control and Internal Audit) Regulations, 2014 require a bank or financial institution to establish an effective corporate governance framework which defines the character of the institution and promotes an organisational culture that provides the foundation for effective internal control and internal audit. The framework at a minimum includes:

• effective risk management;
• compliance and internal audit functions, each with sufficient authority, stature, independence, resources and access to the board; and
• a system of internal controls consistent with the size, complexity and nature of the bank’s or financial institution’s operations.

The board of directors is responsible for ensuring that an adequate, effective and efficient system of internal controls and internal audit function is established and maintained.