COLLEGE OF BUSINESS EDUCATION

COLLEGE OF BUSINESS EDUCATION (CBE)

DODOMA CAMPUS

INTRODUCTION TO LEGAL SYSTEMS

ILS NOTES

BY: SIA MSELLA

@2022

DISCLAIMER: These Notes are for teaching purpose only. They will only be
applicable for CBE certificate students taught by me in the year 2022 only.
Table of Contents
INTRODUCTION TO LEGAL SYSTEMS .............................................................................................. 0
ILS NOTES ......................................................................................................................................... 0
1. MEANING AND SOURCES OF LAW IN TANZANIA ........................................................................ 3
I. What Is Law?.............................................................................................................................. 3
II. Branches Of Law ....................................................................................................................... 3
III. The Rationale/ Importance Of Law .................................................................................. 4
IV. Sources Of Law In Tanzania ................................................................................................ 4
V. What Is Business Law ............................................................................................................... 6
VI. Importance of business law ................................................................................................ 6
VII. Sources of business law ....................................................................................................... 7
2. LEGISLATIVE PROCESS IN TANZANIA .......................................................................................... 8
I. Stages In Legislative Process .................................................................................................. 8
a. Publication of the bill.......................................................................................................... 9
b. Introduction of the bill in the parliament ....................................................................... 9
c. First reading of the bill ....................................................................................................... 9
d. Submission of the bill to the appropriate standing committee ................................... 9
e. Second reading of the bill ................................................................................................ 10
F. Committee of the whole house and voting...................................................................... 10
g. Third reading of the bill ....................................................................................................... 10
h. Presidential assent ................................................................................................................ 11
3. LEGAL SYSTEM ............................................................................................................................. 12
I. Types/ forms of legal system in the world ........................................................................ 12
A. Common law legal system ................................................................................................ 12
B. Civil Law Legal System ...................................................................................................... 13
C. Religious Law Legal System .............................................................................................. 13
D. Socialist Law Legal System ............................................................................................... 14
4. COURT SYSTEM IN TANZANIA .................................................................................................... 15
I. What Is A Court System ......................................................................................................... 15
II. Court Hierarchy In Tanzania Mainland ............................................................................... 15
III. Tribunals .............................................................................................................................. 18
5. PRINCIPLES OF THE LAW OF CONTRACT ................................................................................. 19
I. What Is A Contract ................................................................................................................. 19
II. Types Of Contract .................................................................................................................. 19

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 III. Parties To A Contract ........................................................................................................ 22
IV. Formation Of A Contract ................................................................................................... 23
V. Elements Of A Valid Contract .............................................................................................. 23
VI. Terms Of A Contract .......................................................................................................... 29
VII. The Doctrine Of Privity Of Contract ............................................................................... 30
VIII. Discharge Of A Contract .................................................................................................... 30
IX. Remedies For Breach Of Contract ................................................................................... 32
6. BUSINESS ORGANISATIONS ........................................................................................................ 34
I. SOLE PROPRIETORSHIP .......................................................................................................... 34
a. Advantages of sole proprietorship .................................................................................. 34
b. Disadvantages of sole proprietorship.............................................................................. 34
c. Formation Of Sole Proprietorship .................................................................................... 35
II. PARTNERSHIP .......................................................................................................................... 35
a. What is partnership?............................................................................................................. 35
b. Essential elements of a partnership...................................................................................... 35
c. Concepts in partnership ........................................................................................................ 35
d. Types of partnership ............................................................................................................. 35
e. Advantages of partnership.................................................................................................... 36
f. Disadvantages of partnership ........................................................................................... 36
g. Formation Of A Partnership .................................................................................................. 36
h. Partnership Deed .................................................................................................................. 37
i. Contents of a partnership deed ............................................................................................ 37
j. Duties and rights of partners ................................................... Error! Bookmark not defined.
k. Dissolution of partnership .................................................................................................... 38
III. COMPANIES........................................................................................................................... 38
i. Characteristics/attributes/features of Companies ............................................................... 38
ii. Types of a Company .............................................................................................................. 39
iii. Advantages and disadvantages of co .................................................................................... 40
iv. Formation of a company ....................................................................................................... 40
v. Documents of company formation ....................................................................................... 41
vi. Winding Up Of The Company ............................................................................................... 43

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 1. MEANING AND SOURCES OF LAW IN TANZANIA

I. What Is Law?
 This question has more than one answer. In fact the term law has so many
meanings depending on the context in which it is used. The term law is
defined differently in the fields of physical science, also different in the
fields of social sciences and so on. Our interest here however, is on the
‘Laws of the State/country’.
 So what is law in our context?
There are several definitions of ‘law’. Different scholars have attempted to
define laws differently. Some of these definitions are like;
a) ‘Law is a body of principles recognised and applied by the state in
administration of justice.’
b) ‘Law is a rule of human conduct, imposed upon and enforced among
members of a given state.’
 All in all , people define law different but for the purpose of simplicity , we
may define law as follows;
Law is a body of enforceable rules and regulations
imposed by the state/ governing authority to govern
human behaviour in the society.

Therefore basically, law is a body of rules under which a society is governed.

II. Branches Of Law

There are two branches of law namely;

a. Private law; it is a branch of law which regulate the relationship between

one individual and another. It is also called civil law as it deals with matters
between private individuals such as contracts, insurance, companies and so
on.
b. Public law; is a branch of law which regulates the relationship between an
individual and the state. It consists of criminal laws, administrative laws
and so forth.

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 III. The Rationale/ Importance Of Law
Why do we need law? Why is it important to have laws in a society?

In order to understand the importance of law, try to imagine a society without

law. It will be a ruthless, warlike cruel society. There will be no survival, no
peace, no order just chaos.

For people to live and work peacefully in the society, maintaining law is very
important. Below are few points showing the importance of law in the society;

i. Law helps in regulating the conduct and behaviour of people in the society.
This allows for peace and order to be maintained.
ii. Law provides justice to members of the society. This is because it helps in
resolving disputes arising between members in the society
iii. Laws protect the fundamental rights and freedoms of the individuals in the
society.
iv. Laws maintain political and economic stability in a state.
v. Laws maintain peace and security in the country.
vi. Law provide guidelines and procedures in the dealings of individuals in a
state.
vii. Law promotes fairness
viii. Law protects us from arbitrary acts of governments

IV. Sources Of Law In Tanzania

To know the sources of law in Tanzania, we can simply attempt to answer the
questions; ‘Where do our laws come from?’ ; How do we get laws?

Sources of laws are simply where our laws come from. In Tanzania there are
various sources of laws as follows;

I. The Constitution of Tanzania

The constitution of Tanzania is the main source of law in Tanzania. The current
Constitution is of 1977. The constitution of Tanzania is a source of law because;

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 a. It contains some important rules and regulations for the governance of the
state. For example; Part III of the constitution provides for basic human
rights, it also provides the powers and limitations of the government.
b. It is a ‘mother law’ of the country. This means that the constitution
provides the legal foundation of all other laws in the country. All laws must
conform to the constitution as they are all derived from it. Article 97 of the
constitution is the one which give a legal basis of all other laws in Tanzania.

II. Statutes/ Acts of the parliament

These are the laws made by the parliament of Tanzania which is the body of
the government which is empowered to make laws. They are the written laws
that are made by the parliament to regulate the conduct of human behaviour.
For example; the Law of contract Act.

III. Case Laws

These are cases which have been decided by higher courts of the country,
usually High court and Court of Appeal. These decided cases are binding
towards lower court. This means that the lower courts must follow or adhere to
the decisions of higher courts as they become law.

IV. Customary and Islamic laws

Customary law are a set of rules developed through customs and practices
of different tribes in our country which can be applied as binding law in
primary courts in Tanzania.
Also some principles of the Islam religion can also be applicable as law in
primary courts. However customary law and Islamic law are only applicable
in cases involving personal matters only; For example; issues of marriage
and inheritance. Moreover customary and Islamic law are only applicable to
the members of the community concerned not for everyone in the country.
Also, they are only applicable when they do not conflict any written law.

V. International law (treaties and convention)

International laws are laws which govern the relations between different
states. International law is usually in form of treaties and conventions.

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 International law is applicable in Tanzania through the treaties and conventions
that Tanzania has signed. Once a treaty or convention is signed by Tanzania,
the stipulations in the treaty become binding law in Tanzania. Example of
treaties and conventions signed by Tanzania include East African Community
Treaty( EAC treaty), SADC Treaty, CITES, UN Framework Convention on Climate
Change etc.

VI. Received Laws

These are laws which originated from England and were received in Tanzania as
laws applicable in the country. Received law is applicable only when there is a
gap in our laws meaning that there is no any other written law to address the
matter at issue. The set of received laws include the Common Law, The
Doctrine of Equity and Statutes of General Application of England applicable in
England before the 22nd of July 1920. The date 22nd of July 1920 is called ‘the
Reception date’ for English Law in Tanzania. Only laws which where applicable
in England before the reception date are applicable in Tanzania as a source of
law.

V. What Is Business Law

Business law is a set of rules and regulations which govern and regulate business
activities and business transactions. Business law regulate business entities ( such
as companies, partnerships , agency, etc) and commercial transactions such as
contracts, sale of goods etc.

VI. Importance of business law

Knowledge of business law is very important for a successful carrier in business as
well as management of a business. Business law is important because;

a) It regulates business transactions, business entities and all business

activities to ensure smooth running of businesses.
b) Business law ensures businesses are run with some measure of predictability
which in turn reduces risks in businesses.
c) Business law provides for, and protects the rights of businesses and
businessmen against other businesses, individuals and the state.

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 d) Business law makes businessmen and professional aware of the legal issues
which arise in the day to day running of the business and how to deal with
them.
e) Business law provides a means of settlement of business disputes in a just a
amicable manner.
f) Lastly, it helps businessmen and professionals in realizing business ethics
which they must follow in running a business.

VII. Sources of business law

We get business law from all the sources of law in Tanzania except customary and
Islamic law. This means, sources of business law are the same as the sources of law
discussed above leaving out customary and Islamic law.

The sources of business law therefore are;

a) The constitution of United Republic of Tanzania of 1977

b) Acts of parliament/ statutes
c) Case laws/ precedents
d) International law
e) Received laws

PRACTISE QUESTION

With Vivid examples from Tanzania, discuss the sources of business law in
Tanzania. (Every point should be backed up with an example.)

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 2. LEGISLATIVE PROCESS IN TANZANIA

Legislative process is simply a law making process. It is the whole process whereby
an idea is developed through various stages until it becomes a law. It involves
various stages which the parliament goes through in making laws of the country.
The legislative process in Tanzania is provided under Article 97 and 98 of the
Constitution of the United Republic of Tanzania of 1977.

The legislative process in Tanzania starts when there is an idea or proposal of

making a new law. The idea or proposal of making a new law may originate from
the government or from a private member of the Parliament who wishes a certain
law to be made.

The idea or proposal to make law is called a BILL. A BILL is a proposed law which is
to be considered under the parliament. Depending on its origin, a bill can be of
two types;
a. Government Bill: this is a bill which originates from the responsible
minister or the Attorney General.
b. Private Bill: This is a bill which originates from an individual member of the
parliament.

I. Stages In Legislative Process

Once a bill is made it goes through various stages until it becomes law. These
stages form the legislative process. The stages can be categorized as follows;

a) Publication of the bill.

b) Introduction of the bill in the parliament
c) First reading of the bill
d) Submission of the bill to the appropriate standing committee
e) Second reading of the bill
f) Committee of the whole house and voting
g) Third reading of the bill
h) Presidential assent.

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 a. Publication of the bill

After the bill is prepared, it has to be published in the Government Gazette before
being introduced in the parliament. The minister responsible for making the bill or
the private member of parliament must publish the Bill in at least two issues of the
government gazette.

The first publication of a Bill must contain its full text, and must be published at
least twenty-one days before it is introduced in the National Assembly for first
reading. The second publication of the Bill is made by inserting a notice in the
Gazette naming the title of the Bill.

NOTE: This procedure will not be followed in if the Bill is of an urgent nature and
the President has certified to the effect that time does not permit compliance of
prescribed procedures. A bill of this nature is called a bill under certificate of
Urgency.

b. Introduction of the bill in the parliament

On lapse of 21 days after the publication of the Bill, the Bill may then be
introduced the parliament for the first reading.

For Government Bills, the Minister concerned or the Attorney General will
introduce the Bill in the Parliament. For a Private Bill the private member will
introduce the Bill to the Parliament.

c. First reading of the bill

After introduction of the Bill in the Parliament, the Clerk of the Parliament will
read the Bill to the parliament. This will be the First Reading of the Bill. The clerk
will read the long title and the short title of the bill in the parliament. In the first
reading no debate is conducted on the Bill.

d. Submission of the bill to the appropriate standing committee

After the First Reading, The speaker then assigns the Bill to the appropriate
standing committee of the parliament. The appropriate standing committee
considers the bill and provide suggestions on amendments which are to be made to

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the bill. The bill will be amended accordingly and the standing committee will go
through the bill again to see if the proposed amendments were included.

Once the committee is done considering the bill, the Chairman of the committee
will inform the Speaker that it has concluded considering the bill. The Speaker will
order the bill to be returned in the parliament for the Second Reading.

e. Second reading of the bill

Once the bill is returned to the parliament after consideration by the standing
committee, it is read for the second time. This is the second reading of the bill.
Then the chairman of the standing committee gives the opinion of the committee
on the bill.

After that the Opposition is allowed to give their view on the bill if the bill is a
Government bill. If the bill is a Private bill, the Government spokesman will be
allowed to give the Government’s opinion on the bill.

F. Committee of the whole house and voting

After second reading, the parliament will then transform itself to be a Committee
of the Whole House. The committee of the whole house will discuss each clause in
the bill together with its amendments. The chairman of the committee of the
whole house will then ask members if they accept each clause in the bill with its
amendments.

The members of the committee will then vote for the passage of the bill. If the bill
is voted for by more than two thirds of the members, it will proceed to further
stages. If the bill does not get more than two third votes of the members, it will
not proceed.

g. Third reading of the bill

After the above procedure, the parliament will presume with the speaker at the
chair. The Minister concerned or the private member will inform the parliament
that the bill has been considered by the committee of the whole house and the
member have passed the bill. After this the Bill will be read for the third time. The
third reading of the bill signifies that the bill has been passed by the parliament.

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h. Presidential assent

After the bill has been passed by the parliament, it has to be assented by the
president for it to become a law. The president assents the bill by signing the bill.
If the president assent a bill it becomes a law. However if the president refuses to
assent the bill, it is returned to the parliament for further consideration

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 3. LEGAL SYSTEM
A legal system is a system of laws through which a society is governed. It consists
of the ways in which the laws are made, interpreted and enforced. A legal system
shows how the laws of a state are made, and how they are interpreted and
enforced. Thus all legal systems have three components; the parliament,
legislature and executive and show the way the three components operate in
governing a society.

From the above definition therefore, every country has its own legal system.
However to study the legal system of every country in the world would have been
very difficult because we would have over 200 legal systems. To avoid the
complications of studying the legal system of every country in the world, there has
been a classification of legal systems in the world into four major group or types.

I. Types/ forms of legal system in the world

Legal systems in the world are grouped into four major types. These are;

a) Common Law legal system

b) Civil Law legal system
c) Religious Law legal system
d) Socialist Law legal system

A. Common law legal system

The Common law legal system is a type of legal system which originates from
England. The main characteristic of common law legal system is that it operates
under the doctrine of Judicial Precedents as its main source of law. This means
that the central source of law in the common law legal system are the decisions of
cases by judges (case law/ precedents).

It doesn’t mean that in common law system there is no legislature. In fact there is
a legislature which passes new laws and statutes which are also sources of law but
precedents play the central Role.

The distinctive features of Common law legal system include;

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  judgments rendered by the higher courts enjoy binding authority,(judicial
precedent)
 court proceedings are based on the adversarial nature and the judges play a
passive role;
 laws passed by the legislature enjoy the same status as ‘judicial precedents

The countries which practice the common law legal system includes; United
Kingdom, India, South Africa, most of the Common wealth countries and
TANZANIA.

B. Civil Law Legal System

The civil law legal system originates from the Roman Empire. The main
characteristic of the civil law legal system is that it operates largely on
codifications ( codifications are written laws passed by the legislature).The central
source of law in the Civil law legal system are codifications such as the
Constitution and Statutes passed by the legislature.

Unlike in the Common law legal system where precedents take a central role, in
Civil law legal system only laws made by the legislature are considered legally
binding.

Distinctive features of Civil Law legal system include;

 judgments rendered by the higher courts do not enjoy binding authority

 Court proceedings are not adversarial in nature, but are called ‘inquisitive’
and the judges play an active role.
 Laws passed by the legislature enjoy the highest authority.

The countries which practice the Civil law legal system include; France, Italy,
Spain, Germany and all former colonies of France in Africa ( ivory coast, Mali,
Senegal etc

C. Religious Law Legal System

In religious law legal system, the main source of law is a religious system or a
religious book. Although religious law legal system contains different kinds of
religious system such as the Jewish Halakha, Canon Law etc. ; the most common
kind is the Islamic law legal system which uses the Islamic Sharia Law.

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The countries which practice the Religious Law Legal System include; Afghanistan,
Iran, Libya, Morocco and Saudi Arabia.

D. Socialist Law Legal System

The socialist legal system originates from Russia. The socialist system is based
mainly on the civil law legal system but with some modifications and addition from
Marxist- Leninist Ideology.

This means that in the socialist law legal system , the major source of law is the
Civil Code but the socialist system provide that most property must be owned by
the state. It also has special laws and courts for state enterprises.

Distinctive features of Socialist Law legal system include;

 Law is considered to be of revolutionary

 character and not static
 Public law is given more prominence than any
 other branches of law
 Acts of administration and the laws passed by the legislature are normally
not reviewed.
 Other features of the socialist law legal system includes the need of a one-
party state, a planned economy, and a social order directed towards a
communist morality.

The countries which practice the socialist law legal system includes; China, North
Korea, Russia, and Cuba.

E. Mixed law legal system

It is a combination of two legal system in the same country such as a combination
of common law legal system and civil law legal system or Civil law legal system and
religious law legal system etc.

Countries following mixed law legal system are South Africa, Israel, and others

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 4. COURT SYSTEM IN TANZANIA
Tanzanian court system falls in one of the branches of the government; the
judiciary. The court system in Tanzania has two main branches;

a. The court system of Tanzania Mainland

b. The court system of Zanzibar

For the purpose of this lecture, we will study the court system of Tanzania
Mainland.

I. What Is A Court System

Court system can simply be defined as the arrangement of courts from the highest
court to the lowest court and their functions. Court system is sometimes referred
to as court hierarchy.

In Tanzania the highest court in the court hierarchy is the COURT OF APPEAL of
Tanzania and the lowest court is the PRIMARY COURT.

II. Court Hierarchy In Tanzania Mainland

The court hierarchy in Tanzania mainland can be shown in the following diagram;

Court of appeal

High Court of Tanzania

Resident Magistrates’ District court

court

Primary court

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 A. COURT OF APPEAL
• It is the highest court in the court hierarchy

• It is established under Article 117 of the constitution of Tanzania.

• It is headed by the Chief Justice and consists of Justices of Appeal.

• It has power to hear appeals from the High Court of Tanzania and the High
court of Zanzibar.

• It has territorial jurisdiction in both Tanzania Mainland and Zanzibar.

B. THE HIGH COURT OF TANZANIA

 It is established under article 108 of the constitution of Tanzania.
 It serves Tanzania Mainland only.
 It is headed by judge in charge assisted by other judges
 The High Court has 4 divisions; commercial division/court , land
division/court, economic crimes court and labor division/court. The
Commercial Division ( the Commercial Court) is the division of the High
Court which handles all commercial disputes. The commercial court was
established to ensure efficient and fast decisions in commercial disputes so
as to encourage business development. The Land Division (the Land Court) is
a division of the high court which has the power to hear land disputes
relating to lands. The Economic crimes court has power to hear cases
involving economic crimes, grand corruption etc. Finally, The Labour Court
has power to entertain labour and employment disputes
 It has power to entertain fresh cases and appeal cases
 It also has power to entertain criminal cases and civil cases.
 criminal cases that can be entertained in the High court involve serious
offences such as murder, treason etc
 Civil cases that the High Court can entertain are those whose value exceeds
200 million for movable property and 300 million for immovable property.
 It entertain appeal cases from district court and resident magistrates’
court

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 C. THE RESIDENT MAGISTRATES’ COURT
 This court is established under Section 5 of the Magistrates Courts Act,
(RE 2019).
 It is established in every region in Tanzania and therefore it has
territorial Jurisdiction in the region in which it is established.
 It is presided over by the resident magistrate in charge.
 It has the same powers as the district court however it has no power to
hear appeal cases.
 It only hears fresh cases.
 It has power to entertain criminal cases of offences such as theft, and
other criminal offences
 It has power to entertain fresh civil cases whose value of subject matter
does not exceed 200 million for movable property and 300 million for
immovable property

D. THE DISTRICT COURT

 It is established under Section 4 of the Magistrates’ Court Act, Cap 11
RE 2019.
 It is established in every district in Tanzania and therefore it has
territorial jurisdiction in the district in which it was established.
 It is headed by a district magistrate in-charge.
 It can entertain both fresh cases and appeal cases.
 It can entertain criminal cases involving offences such as theft, rape and
other criminal offences
 It can entertain civil cases whose value does not exceed 200 million for
movable property and 300 million for immovable property.
 It cannot entertain cases of a civil nature relating to land or labour
matters
 It can entertain appeal cases from primary court

E. PRIMARY COURT
 This is the lowest court in the court hierarchy

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  It is established under Section 3 of the Magistrates’ Court Act,
CHAPTER 11 RE 2019.
 It is established in every district in Tanzania mainland and has territorial
jurisdiction in the district it is established.
 It is presided over by a primary court magistrate
 It can entertain criminal cases involving minor offences such as assault,
battery etc
 It can entertain civil cases whose value does not exceed 30 million for
movable property and 50 million for immovable property.
 It cannot entertain cases of a civil nature relating to land or labour
matters
 It also has power to entertain cases under customary and Islamic law.

PRACTISE QUESTION

Discuss the court system of Zanzibar.

III. Tribunals
Normally the judiciary through courts is the ones with powers to solve disputes in
the society. However, in reality, some of the disputes in Tanzania are solved by
the executive eg. Imposition of fines.

Tribunals may be defined as administrative bodies which do not form part of the
judiciary but which have powers to hear disputes and pass decisions.

Tribunals are also called Quasi Judicial bodies since they are not courts of law.
They only assist courts in their functions

Examples of tribunals in Tanzania include;

 The Ward Tribunal

 The District land and housing tribunal
 The Tax Revenue Appeals Board
 The Fair competition tribunal
 Military tribunals.

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 5. PRINCIPLES OF THE LAW OF CONTRACT
The law of Contract is the law which regulates contracts or agreements. It consists
of the rules and regulations that must be followed in a formation to
implementation of a contract.

The law of contract in Tanzania is provided for by an Act of parliament called The
Law of contract Act, Chapter 345 [RE 2019].

I. What Is A Contract
A contract is an agreement between two parties which is enforceable by law. A
contract is not just an agreement; it is an agreement which can be enforced in
courts of law.

To be enforceable, the contract must meet certain elements. There must be an

offer, acceptance of that offer, and then an intended exchange of value between
the parties. These elements demonstrate a “meeting of the minds” between the
parties. That is, the parties have a common understanding of the material terms of
the agreement. Therefore; all contracts are agreements, but not all agreements
are contracts.

A contract does not have to be a formal, written document. It can be a verbal

agreement or it can arise through the conduct of the parties. Those who make a
contract do not have to use the word contract or even recognize that they have
made a legally enforceable promise. Example: One individual offers to purchase a
mobile phone from another person for 50,000/=. The other person agrees. This is a
contract.

II. Types Of Contract

Contracts can be categorised in several types as follows;

i. On basis of formation there is;

 Express contracts

 Contract by conduct/ implied contracts.

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 ii. Based upon the duty of performance
 Unilateral contracts
 Bilateral contracts

iii. ON basis of validity and enforceability

 Valid contract

 Voidable contract

 Void contract

A. On basis of formation, contracts can be divided into;

i. Express contract;
An express contract arises from interactions in which parties actually
discuss the agreement and the promised terms. Example: One
person expressly offers to sell a phone to another person. The other
person accepts the offer by saying the she will buy it. The parties
have an expressed contract because they have stated an offer, stated
an acceptance, and identified consideration.
Express contract can either be;
 Oral/ simple contract formed by words of mouth or verbally.
 Written contracts which are written down on a writing surface.

ii. Implied contracts;

These are contracts which either arises from the conduct of the
parties (That is, the parties interact in a manner that constitutes a
legally enforceable contract) ;
Or; from a contractual relationship ordered under the law/court.
Example: Ellen goes to the restaurant and orders food. Ellen knows
that once you have eaten food in restaurants you have to pay.
Ordering food implies a promise from Ellen to pay for the food even
though Ellen did not make an express promise to pay for it.

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 B. Based upon the duty of performance and how an offer to contract is
accepted, contracts are classified as follows;
iii. Bilateral Contract ;
A bilateral contract is a contract which consists of two promises
promise to another party that she will do something (or avoid doing
something) in exchange for the other party’s promise to do something
(or promise to avoid doing something).Example: Eric promises to
wash Julia’s car if she promises to pay him 1000/=
iv. A Unilateral contract
It is an agreement with only one promise. That is, one party promises
a future action if the other party performs whatever is requested of
her. A contract is formed or comes into existence once the other
party begins to perform the requested services. Example: a company
promises to pay 50,000/= to the person who will find and arrest an
employee who stole from the company. David starts searching and he
finds and arrest the employee

C. Basing on validity and enforceability, the types of contracts are as

follows;
v. Valid contracts and Invalid contracts;
A valid contract is a contract which consists of all of the elements
essential to forming a legal contract; example offer, acceptance,
consideration etc.
Conversely, an Invalid contract is a contract which lacks any of the
essential elements of a contract. Example: One person announces
that she will sell her cell phone for a reasonable price. Another
person quickly says, “I will buy it”. In this case there is no valid
contract because there is no consideration. While the parties might
think they have a contract, if a challenge to the contract arises, a
court is likely to hold it to be invalid.

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 vi. Enforceable and Unenforceable Contract ;
An enforceable contract is one that can be enforced in court of law.
That is, the law allows for enforcement of the contract.
Unenforceable contract is one that cannot be enforced in a court of
law. It can either be valid or invalid but a court will not enforce the
contract. Example: An oral contract of the value above Tshs.200
may be valid, but the court will not enforce it because that specific
type of contract is required to be in writing under the state’s law.

vii. Void and Voidable Contracts;

A void contract is a contract which is unenforceable from the outset.
That is, the law identifies certain types of contracts that are deemed
void from the outset. These include contracts that violate public
policy or have an illegal purpose. Example: A contract to purchase
illegal drugs is void.
A voidable contract is an agreement where either one or both parties
have the right to avoid performance of the contract. That is, the
contract is valid and enforceable until one party elects to void it.
Example: A party to a contract who is below the age of majority may
void the contract at any point before she reaches the age of majority.

Practice Question:

Amy is extremely angry at David. She hires Laura to pour sugar into the gas tank of
David’s car so that he gets an accident. Laura gets a change of heart and fails to perform
their agreement? Can Amy enforce her agreement with Laura?

III. Parties To A Contract

Parties to a contract mean the people who make or form the contract. All
contracts are formed by two parties;

a. Offeror/ promisor- this is the party or the person who makes an offer/
promise. The person who show willingness to contract.

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 b. Offeree/ promisee- this is the person who accepts the promise or offer. The
person who signifies his acceptance to the promise or offer.

IV. Formation Of A Contract

A contract is an agreement between two persons which has a legal force. For there
to be an agreement one person has to make an offer or promise to another person
and the other person has to accept the offer or promise. The promise or offer
made is referred to as ‘An Offer’ and the person who makes the promise or offer is
referred to as ‘offeror or A promisor’

Meeting with the offeror’s promise is known as “acceptance”. The person who
makes an acceptance is called ‘offeree or a promisee’.

Both parties must give or exchange something of value with the other. The thing of
value is known as “consideration”. Consideration is the promise to give, or actual
giving, of a requested benefit or the incurring of a legal detriment (i.e., doing
something one does not have to do). Both parties must be of a legal age and sound
mind, and the purpose of the agreement cannot be illegal or against public policy.

The entire above elements must be present in formation of a valid contract.

Therefore a valid contract can be defined as an agreement which is enforceable in

courts of law and which consists of all of the elements essential to forming a legal
contract; example offer, acceptance, consideration etc.

V. Elements Of A Valid Contract

These are the requirements for a contract to be valid. They are also called
characteristics of valid contracts. They are included under Section 10- 14 of the
Law of contract Act, cap 345. They are;

i. Offer and acceptance

ii. Lawful consideration

iii. Capacity of parties

iv. Free consent

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 v. Legal/ lawful object

vi. Intention to create legal relationship

i. AN OFFER
An offer is an expression of willingness of a person to enter into a contract. A
person who makes an offer is called an offeror or a promisor.

For an offer to be an effective offer and a good offer for contract formation it has
to be;

a. Definite and clear- this means that an offer to contract must contain a
specific promise from the person making the promise. The wording of an
offer should be in a way that does not cause confusion to the person who is
receiving the offer. The offeree must understand that she is the intended
recipient of the offer and may accept it. Also, the terms of consideration
must be stated. Example: Simply stating that I will sell you an item “for a
reasonable price” is not sufficient to constitute a definite offer.

b. Communicated to the one who is to accept it- an offer becomes

effectively communicated when it comes to the knowledge/ is received by
the offeree.

c. There must be Intent to Make an Offer - The offeror must intend to make
the offer. The intent to make an offer is judged from the position of the
offeree. If a reasonable person in the position of the offeree would believe
the offeror’s words or actions constitute an offer, it is an offer. Example: I
shout out loud in frustration that I would sell my useless phone for a 500/=.
The words look like an offer to sell my car. In reality, I am simply espousing
my frustration. I do not have the intent necessary for my statement to
constitute an offer and no reasonable person would interpret my statement
as truly demonstrating that intent.

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 d. It must be a final expression-meaning that the offeror leaves no room for
further negotiation it must be a final expression.

e. An offer must contemplate to give rise to legal consequences and capable

of creating legal relations.

TERMINATION OF AN OFFER

Termination of an offer means ending an offer. An offer may be brought to

an end at any time before communication of acceptance is complete.

REASONS OR WAYS WHICH AN OFFER MAY BE TERMINATED

1. Revocation of an offer; generally, the offeror may revoke an offer at any
time before the offeree accepts it. If the offeree has already accepted the
offer, a valid contract exists and an attempt to revoke the offer may
constitute breach of the contract.
2. Death and incapacity: if the offeror dies or loses mental capacity at any
time before an offer is accepted, the offer is revoked. Note: The offer does
not become effective again if the offeror regains mental capacity
3. Lapse of time or lapse for want of acceptance; Unless the offer states
otherwise, an offer terminates after a reasonable period of time. A
reasonable period of time will vary depending upon the type of contract.
Example: An offer to sell bananas will terminate more quickly than an offer
to sell cement.
4. Counter Offer; if an offeree makes a counter offer or counter proposal in
response to an offer, the original offer terminates. This is the case with
negotiations. If a party attempts to negotiate new or additional material
terms to the offer, the original offer terminates.
5. Illegality or Violation of law; An offer terminates if the subject of the offer
(the activity or product) becomes illegal.
6. Destruction of the subject matter; An offer terminates if, before the offer
is accepted, the property that is the subject of the offer is destroyed.

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 7. Rejection of an offer; An offer terminates if the offeree receives the offer
and rejects it. Once the offeree rejects the offer, she cannot come back
later and accept the offer.

ii. ACCEPTANCE
Acceptance of an offer is the assent of the offeree to the demands
contained in the offeror’s offer. It is an unconditional expression of assent
to all the terms of an offer.The person making an acceptance is called an
offeree or a promisee

For an acceptance to be effective to make a contract it has to;

a. Be absolute and unqualified; it must be in response to and in exchange for

an offer, it means that one who is accepting must be aware of the existence
of an offer. When we say in exchange for an offer we mean that whatever
that you accept must be in exchange for what is provided.
b. Be communicated to the offeror and the communication must be
complete.

• Post Rule: Communication of acceptance is complete as against the offeror

when it is made and against the offeree when it comes to the knowledge of
the offeror.

c. It must be in response to and in exchange for an offer, it means that one

who is accepting must be aware of the existence of an offer. When we say
in exchange for an offer we mean that whatever that you accept must be in
exchange for what is provided.
d. It may be expressed or implied, - It must be expressed in some usual and
reasonable manner unless the proposal explain the way in which it is to be
accepted.

TERMINATION OF ACCEPTANCE
This means ending an acceptance. An offeree can revoke his acceptance at any
time before the communication of acceptance is complete.

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 iii. LAWFUL CONSIDERATION
Consideration is anything of value. A valid contract must include an
exchange of value between the offeror and offeree. The value should be the
inducement or incentive for the other party entering into the agreement.
That is, it must be the subject of the bargain between the parties.
Consideration must be lawful and something of value eg. Money, land,
another promise in return etc.
• Who is to furnish (give) consideration?
 the promisee/ offeree
 Any other person…….see Section 2(1) d of LCA.

iv. CAPACITY OF PARTIES

Capacity to contract simply means competence or ability of a party to enter
into a contract.The persons who are competent to contract are;
a) Persons who are of the age of majority (18+ years)
b) Persons who are of sound mind
c) Persons who are not disqualified from contracting by any law
Does it mean only the above people are allowed to enter into contracts?

 In real life, all people may enter into contracts; minors, people of unsound
mind also enter into contracts. However special rules apply for persons with
no capacity to contract such as minors and people of unsound mind.

 For a contract with minor or person with unsound mind to be a valid

contract, the contract must be for the supply of Necessaries only.
Necessaries are things which a person needs to be able to live.

v. FREE CONSENT
Free consent simply means that the parties on their own willingness have agreed
upon the same thing in the same sense. There is meeting of minds. Free consent
only happens when the agreement between parties is not caused by the following;

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 1. Coercion- this means the use or threat of force to convince a person to act
according to one’s wishes. This is when a threat of a crime is used to force
someone in a contract. If a party enters into a contract due to coercion
imposed by the other party, the contract is voidable at any time by the
party subject to duress

2. Undue influence-Undue influence arises when one party unfairly takes

advantage of another party by using a position of trust, influence, or
confidence. Example: an employer who enters into a contract with her
employee which is not related with the employment may be deemed to have
exercised undue influence. The influenced party may have been pressured
to enter into the agreement or felt unduly obligated to enter into the
agreement for fear of destroying the employer-employee.

3. Fraud- Fraud involves an intentional misstatement of an important fact that

induces a party to enter into a contract. If a person is defrauded into
entering a contract, the defrauded party may void the contract upon
learning of the fraud.

4. Misrepresentation- Misrepresentation is a material misstatement of fact

without the intent to mislead which induces a party to rely on the
statement in making a contract.

5. Mistake- this is a mistake by both parties regarding “material” facts or

circumstances relevant to the contract which may make a contract
voidable. The standard for whether the mistake of fact is material is
whether a reasonable person would have entered into the agreement if the
true facts were known.
If the agreement is caused by any of the above, it lacks free consent and therefore
it is not a valid agreement. The above 5 are also called ‘vitiating factors’ or factor
vitiating a contract as they tend to affect the validity of a contract.

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 vi. LAWFUL OBJECT
The object of the agreement must be lawful. This means that it should not be;

a) Illegal
b) Immoral
c) Opposed to public policy
d) Cause injury to a person or property of another.

vii. INTENTION TO CREATE LEGAL RELATIONSHIP

• The parties must intend to enter into a legal relationship. That is there
agreement should be legally binding. In a legally binding agreement, the
parties may sue on it in case it is broken

VI. Terms Of A Contract

Terms are statements made by parties to a contract which form the contract

Types of terms of contract;

i. Express and implied terms

Express terms are those which are specifically agreed upon by parties whether
orally or in writing

Implied terms are terms which are not specifically agreed to by parties but they
form a contract due to requirements of law, or custom, or by courts.

ii. Conditions and warranties

Conditions are major terms of a contract. They are so important that the breach of
a condition may bring the contract to an end

Warranties are minor terms of a contract. Breach of warranties does not end the
contract but the party may be entitled to damages.

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 VII. The Doctrine Of Privity Of Contract
Privity of contract refers to the relationship which exists between parties to a
contract that allows the parties to sue on it.

The doctrine of privity of contract rule requires that; only a party to a contract
can get benefits under a contract and have obligations under it. Therefore only
parties to a contract can sue or be sued under the contract.

Exceptions to privity of contract rule

These are exceptions to the rule that only parties to the contract can sue or be
sued under it.

In some circumstances third parties( people who are not parties of the contract)
can sue or be sued in a contract. Such exceptions are as follows;

 Agency relationships
 Negotiable instruments
 Trusts
 Assignment of contact
 Collateral contracts etc

VIII. Discharge Of A Contract

A contract is said to be discharged or terminated when the parties under the
contract are freed from their obligations.

A contract can be discharged in different ways or methods.

Methods of discharge of a contract

1. Discharge by performance
2. Discharge by Agreement
3. Discharge by frustration
4. Discharge by Breach
5. Discharge by operation of the law

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 1. Discharge by performance
When the parties perform their obligations under a contract, the contract comes
to an end. An individual is relieved from her duties under a contract once she has
fully performed the duties under the contract. The general rule is that the
performance must be precise and exact.When one party performs his obligations
partially, he will not be discharged from the contract.

2. Discharge by agreement
The parties may form an agreement to release each other from their contractual
obligations. This is done by either forming a new contract which requires parties to
be released of their obligations in the old contract, or one party agrees to release
the other party from his obligation.

3. Discharge by frustration
Parties to a contract may be relieved from their obligation to perform if
performance becomes impossible, commercially impracticable or the underlying
purpose of the contract is frustrated. A contract is said to be frustrated when an
event occurs which make it impossible to further fulfil the obligations in a contract
and therefore brings the contract to an end.

When a frustrating event occurs the contract comes to an end and parties are
discharged.

 Frustrating events are such as;

 Death or incapacity of a party
 Destruction of the subject matter
 War
 Natural forces such as hurricanes, flooding, earthquakes.

4. Change of law/ Discharge by operation of the law

The contract is discharged by the operation of law where the law requires parties
to be released of the obligation under the contract.

Circumstances are such as;

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  Death
 Bankruptcy
 Lapse of time.

5. Discharge by breach
This occurs where one party fails to perform his contractual obligations or decide
not to perform his obligations in a contract without a justifying cause.

An injured party will be entitled to some remedies.

IX. Remedies For Breach Of Contract

These are legal rights that a party who has suffered from breach of contract is
entitled to;

They are;

1. Damages; this is monetary compensation awarded by the court to someone

who has suffered loss or injury caused by breach of contract. Example: John
signs a contract to sell Jane supplies for her business. John backs out of the
contract and Jane has to purchase her supplies from another vendor. The
cost Jane incurs to purchase the supplies from a new vendor is 15% higher.
Therefore Jane has suffered damages of 15% of the contract value which the
court will award.

2. Specific performance; Specific performance is a court-ordered, equitable

remedy whereby a court directs a party to perform her duties under the
contract. Example: You agree to sell me a Picasso painting that you
inherited. At the last minute, you back out of the contract. I sue you to
force you to sell me the painting. A court may order specific performance of
the contract by ordering you to sell me the painting.

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 3. Injunction; injunction is a court ordered remedy whereby the court directs
a party who is breaching the contract to stop breaching the contract. It is
usually a remedy available for a continuous breach of contract. Example:
John and Jane enter into a contract where each party agrees not to cross
plot boundaries that they have jointly fixed. John breaches the contract by
crossing the boundary and is now building over Jane’s plot of land. A court
may order injunction to stop John from further breaching the contract.

4. Rescission; Rescission means to undue a contract and return the parties to

the position they were in prior to entering the contract. This remedy is not
available for executed services contracts.

5. Quantum meruit/ Restitution; It is court-ordered, equitable remedy

whereby a court directs a party who has been unjustly enriched through the
services of the other party to pay compensation to the injured party in
proportion to the work done or services provided. Example: Matthew worked
on Mrs Paul’s house on an oral contract whereby consideration was to be
reasonable. He completed enlarging Mrs Paul’s house. Mrs Paul paid him a
very small amount of money. Matthew sued Mrs Paul on quantum meruit
basis. The court ordered Mrs Paul to pay Matthew compensation in
proportion to the work done.

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 6. BUSINESS ORGANISATIONS
Business associations are legal organizations that exist by virtue of state law.
Owners and managers of a business must understand the important characteristics
of business organizations. They must understand how to choose an organization for
their business, how to operate within the chosen organization, and must comply
with the procedural and substantive laws applicable to that business association.

The forms of business association are;

1. Sole proprietorship

2. Partnership

3. Company.

I. SOLE PROPRIETORSHIP
It is a business organization that is formed by only one person. It is easy to form
and does not require a big capital. The sole proprietor bares all liabilities of the
business and enjoys all the profit.

a. Advantages of sole proprietorship

1. Easy to form the business. Simple procedures.

2. Easy to manage the business

3. Easy decision making. No need to consult another person

4. Fewer taxes

5. Small capital needed

b. Disadvantages of sole proprietorship

I. Sole proprietor bares all the liabilities and loss of business

II. The business ends upon death of sole proprietor.

III. It is difficult to raise capital

IV. ………………………………….

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 c. Formation Of Sole Proprietorship
A sole proprietorship is formed by simply beginning business. Sometimes a sole
proprietor may be required to obtain a business licence before starting a business.
At his option, A sole proprietor may decide to register a business name but it is not
compulsory for him to do so.

II. PARTNERSHIP
The law governing partnership is the Law of Contract Act (LCA), Chapter 345 of the
laws of Tanzania[RE 2019]

a. What is partnership?
It is a relationship which subsists between persons carrying on business in common
with a view to make profit. See section 190(1) of LCA.

b. Essential elements of a partnership

i. Partnership arises out of contract and not status of the parties. Since it
arises from contract, all essential elements of a contract must subsist for a
partnership to be formed.

ii. Partnership is formed by two or more persons. The maximum number of

people is 20.

iii. Business of the partnership is carried on by all partners

iv. Business of a partnership is carried on with a view to make profit.

c. Concepts in partnership
 Firm; can be defined as ‘persons who have collectively entered into a
partnership with one another.’

 Partners; two or more individuals who agree to carry out partnership

business for the purpose of making profit.

d. Types of partnership

i. General partnership

Is a type of partnership whereby all partners carry out the business of

partnership and all partners are personally liable for the liability of the
partnership.

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 ii. Limited partnership

Is a type of partnership which consists of one or more persons who are

general partners and who are liable for all debts and obligations of the firm
and one or more persons called limited partner who shall contribute capital
of the firm but will not be liable for the debts of the firm beyond the
amount contributed.

e. Advantages of partnership
• Sharing of risks

• Sharing of capital

• Easy to form

• Combination of skills

• Easy decision making

• Limited external regulations.

f. Disadvantages of partnership

 Liability of partners is unlimited

 Sharing of profit.
 Limitation of number of partners
 Lacks continuity
 Can lead to disagreement in decision making

g. Formation Of A Partnership
A partnership is formed or created by a contract between two or more persons.
The contract may either be;

a. An oral contract; or

b. A written contract.

When a partnership is formed by a written contract, the written contract is usually

called a partnership deed.

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It is more advisable to form a partnership by a written contract because a
partnership deed is considered to be the most reliable source of information
concerning the partnership and evidence in case of any dispute.

h. Partnership Deed
A Partnership deed is a legal document which is signed by all partners and which
contains the details of all matters concerning the partnership including
management of the partnership, rights, duties and liabilities of partners and how
the business of the partnership will be conducted.

It is a written agreement between people who want to form a partnership

concerning the affairs of the partnership.

i. Contents of a partnership deed

ii. Name of the partnership/ firm

iii. Names and addresses of partners

iv. Location or place of the partnership business

v. nature of the partnership business

vi. Date of commencement of the partnership

vii. The capital of business and how its contributed

viii. The sharing of profits of the firm

ix. Management of the partnership

x. Rights and duties of the partners

xi. Accounts and books of accounts of the firm

xii. Methods of introducing new partners

xiii. Settlement of disputes.

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 j. Dissolution of partnership
This refers to the process of bringing the partnership business to an end. A
partnership business can be dissolved in the following ways;

i. By expiration of term of partnership: This happens when a partnership was

formed for a fixed term and that term expires.

ii. By notice of a partner: this occurs when the term of partnership was not
fixed and one partner give notice to the others of his intention to dissolve
the partnership

iii. Death or bankruptcy of any partner

iv. Dissolution by illegality: this happens when an event occurs which makes
the business of the firm unlawful

v. Dissolution by court; this happens when one partner applies to the court
for an order of dissolution of the partnership due to various reasons.

III. COMPANIES
A company is one of the forms of business association. A company can be defined
as an association of individuals who contribute capital and employ it in business for
a common purpose of gaining profits. A company can also be defined as ‘an
artificial being, invisible, and intangible, created by or under the law.

Companies in Tanzania are governed by the Companies Act, Chapter 212 of the
laws of Tanzania[RE2019].

i. Characteristics/attributes/features of Companies
Companies usually have certain unique features that are not present in other forms
of business associations. These features differentiate a company from other
business associations. In Tanzania companies only acquire these characteristics
after the companies are registered. The characteristics of a company may also be
referred to as attributes or features of a company. At times they are called effects
of registration or incorporation of a company. They include the following;

a. Separate legal entity; this means that a company have an independent

personality of its own different from that of its members. It has its own

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 name, its own seal, its own assets and liabilities different from those of
members. See case of Salomon v. Salomon.
b. Capacity to sue and be sued on its own name; this means that a complaint
of the company of a complaint against the company should be addressed by
the company in its own name.

c. Limited liability; this means that incase of company debts, the members
will not be liable to pay them. The liability of members is limited to the
extent of their contribution to the capital of the company only.

d. Perpetual succession; this means that a company does not die or cease to
exist unless it is dissolved. Continuity of a co. is not affected by death or
retirement of its members.

e. Capacity to own separate property; this means the property of a company

is its own. No member can claim property of the co.

f. Transferability of shares; a co. can issue and transfers shares from one
member to another. When a member looses interest in the co. he can
transfer his shares to another person.

g. Separate management different from its ownership

h. Capacity to enter into contracts

ii. Types of a Company

There are various ways in which companies may be classified leading to many types
of companies;

On basis of ownership there are two types of companies;

i. Private company- a co. which consists of 2- 50 members and which

restricts transferability of shares.

ii. Public company – a company which consist of 7 members to infinite

number of members. It allows the general public subscribes for shares
and transfer of shares is free.

On basis of liability, there are 2 types;

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 i. Limited companies – these are co. whereby liability of members is
limited by shares or guarantee

ii. Unlimited companies – in these co. the liability of members is

unlimited.

On basis of origin, there are 2 types;

i. Foreign companies- a co. registered outside Tanzania

ii. Local companies-a co. registered in Tanzania

iii. Statutory companies- these a companies created by a special

Act of the parliament.

iii. Advantages and disadvantages of co

Advantages;

 A co. can own property

 A co. has limited liability
 Easy to attract capital
 ….
Disadvantages;

 Complicated and expensive to establish and manage

 It has a lot of external regulations
 ………..
Question; differentiate a company from a partnership.

iv. Formation of a company

In Tanzania, companies are formed under the companies act. The process of
forming companies involves registration of companies. It is also called
incorporation of companies.

Companies are formed by promoters whose main task is to prepare documents and
register the company

In order to form a company in Tanzania you should follow the following steps;

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 1. Name Selection. A proper and appropriate name should be selected for the
co. the name should be unique and comply with the requirements of the law
2. Name clearance. After selecting a name, the promoter has to submit an
application for name clearance at BRELA and it clears the proposed name.

3. Preparation of the Memorandum and Articles of Association. These two

documents are collectively called the constitution of a company, they
describe the objects of the company and the relation with the outside world

4. Attestation of documents by a lawyer; after preparation of all documents

the documents are taken to a lawyer to be sworn.

5. Registration of company at BRELA. This involves filing the documents at

BRELA and paying fees for registration.

After complying with all the steps, BRELA will register the company and issue a
Certificate of Incorporation as evidence of formation of the co.

v. Documents of company formation

The documents used in formation of a company are memorandum of association
(MOA) and articles of association (AOS).Together the two documents make the
constitution of the company.

MEMORANDUM OF ASSOCIATION (MOA)

The memorandum of association is a document that regulates a company’s

external activities and must be prepared in formation of a company. It explains the
scope of activities of the company and its main purpose is to inform external
stakeholders of the company to know the powers and limitations of the company.

Importance of MOA

 It provides basis of company formation

 It shows areas of operation of the co.
 It defines relationship of the co. with outsiders
 It is a charter of the co.
Contents of MOA

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 1. The Name Clause; this is a paragraph containing the name of the company.
For a private co. the name of the co. must end with the word ‘Limited’ and
for a public Co. the name must contain the words ‘Public Limited Company’
(PLC).

2. Registered Office Clause; this is a paragraph containing the place and

physical address of the company’s office. For example, the registered office
of the co. will be in Tanzania Mainland.

3. Object Clause; this is a paragraph which shows the scope of activities of a

company and the powers of the company. It shows the kind of activities that
a co. does. A co. cannot conduct activities which are not included in its
object clause.

4. Liability Clause; this is a paragraph that shows liability of members of the

company. The liability of members may either limited or unlimited.
5. Capital clause; this is the paragraph that states the capital of the company
which the company will start with. The capital should be divided into shares
and the number of shares stated. For example the capital of the co. is
1,000,000/= divided into 200 shares.
6. Association clause; this is a paragraph containing names and signatures of
the first members of the co. if it is a private co. at least 2 persons and for a
public co. at least 7 persons should sign. The persons state that the are
willing to form a company.

ARTICLES OF ASSOCIATION (AOS)

This is a document which contains the rules and regulations of the co. for the
internal management of the co. The AOS helps the co. to achieve its objects by
ensuring proper running of a co. The articles should not go against the MOA

Contents of articles of Association

1. Share capital of the co.

2. Transfer of shares
3. Alteration of capital
4. Meetings of the co.

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 5. Directors appointment and qualification
6. Dividends
7. Rights and duties of members
8. Accounts, audit and borrowing
9. Winding up.

vi. Winding Up Of The Company

Winding up is a process whereby all assets of the company are realized and used to
pay off the liabilities and members of the co. There are two modes of winding up;

i. Winding up by Court/ compulsory winding up

ii. Voluntary winding up.

Compulsory winding up

This is when the court issues an order for winding up of the company. An
application must be filed before the High Court for winding up of the co.

Circumstances for compulsory winding up;

i. A company pass a special resolution that the company be wound up by the

court

ii. If the co. does not commence business within one year from incorporation

iii. If the co. suspend business for a whole year

iv. The number of its members falls below the minimum required i.e. 2

v. If the company is unable to pay its debts

vi. The court is of opinion that it’s just and equitable to wind up the co.

Voluntary Winding up

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This is when the members or creditors of the company pass a resolution to wind up
the company. It is done without court supervision.

Circumstances for voluntary winding up are;

i. When the period fixed for duration of the company has expired.

ii. When an event happens which requires the company to be dissolved

iii. When the company decides by special resolution too be voluntarily wound
up

iv. When the company fails to pay its debts.

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Notes prepared by Sia, M.