The Finance Act No. 4 of 2020 of the laws of Tanzania (the “Act”) has brought in new fundamental amendments to the Companies Act No. 12 of 2002 of the laws of Tanzania, as amended from time to time (the “Companies Act”), by introducing under Section 2 thereof, a new definition of the term beneficial owner. As a result, the word beneficial owner is defined, among others, to include, a natural person who directly or indirectly ultimately owns or exercises substantial control over an entity or an arrangement.
In addition, the Act amends Section 14 of the Companies Act which provides for submission of memorandum and articles of association when registering a company, by adding a new sub section two (2) which now requires submission of accurate and up to date records of beneficial owners of a company as part of the documentation when registering a company.
A nominee shareholder is a designated party, holding shares for the beneficial/actual owner, and officially registered as the holder of shares in a company, both, in the memorandum and articles of association and the register of members. The purpose of the nominee shareholder is basically to maintain confidentiality by ring fencing the identity of the beneficial/actual owner of shares from being publicly associated with that particular company.
Normally, in a nominee shareholder arrangement, a legal confidential document (a declaration of trust) is drafted and signed by the nominee and held by the beneficial/actual owner. This document would state that, the shares in the name of the nominee are only held by such nominee for and on behalf of the beneficial/actual owner, and that only the latter is entitled to all the rights and benefits arising from those shares and has the exclusive right to dispose them.
This position was bolstered by the provision of Section 122 of the Companies Act, which in essence, required no notice of any trust (such as a declaration of trust or a nominee services agreement), expressed, implied or constructive, shall be entered on the register, or be receivable by the Registrar of Companies.
It should be noted that, prior to the changes brought by the Act, there was no provision under the Companies Act which required submission of information relating to the ultimate beneficiary holder(s) to the Registry of Companies when registering a new company.
As a result, the only information which was required was that of a nominee shareholder only, which information was reflected in the memorandum and articles of association, and subsequently upon registration of a company, in the register of members and share certificates.
Equally important, the Companies Act is amended by introducing a new Section 115 (2) which requires every company to make entries of its beneficial owner in its register of members, and further, a new Section 451A which now requires the Registrar of Companies to establish and maintain a register of beneficial owners as part of its records.
With these changes, all beneficiary holders of shares in a company would now be required to submit their information at the Registry of Companies at the point of registering a company, which is a huge detour, from the current practice.
Going forward, all persons who intend to, (a) hide their identity in companies incorporated in Tanzania, and (b), intend to circumvent other provisions of the law which require certain local shareholding threshold, will now be unable to do so in light of the above proposed position of the law.
Lastly, the amendments highlighted above will in our opinion, defeat the whole purpose (as observed above) of why nominee shareholder arrangements, which is a preferred corporate structuring strategy prevailing in many jurisdictions in the world, exist in the first place.
Note: This is not a legal opinion and the contents hereof are not meant to be relied upon by any recipient unless our written consent is sought and explicitly obtained in writing.
