Tanzania: Share Premiums- Mind How You Keep And Use Them

The old Companies Act had no provisions on share premium.

It was perfectly legal for companies established in Tanzania before the entry of the new Companies Act to credit share premium to profit and loss accounts so as to make them available for paying dividends.

Under the new Companies Act that is prohibited. With the entry into force of the new Companies Act No 12 of 2002 (the Act), share premium is to be credited to a special statutory reserve called "the share premium account" to keep them distinct from profits and revenue reserves.

The application of the rules governing the reduction of capital apply to share premium. This means that share premium may not be distributed to shareholders without a special resolution passed by a general meeting of the company and the approval of the court obtained.

A share premium occurs when a company’s issued shares are saleable on the market for more than their nominal value. The price would be partly the nominal value of the share and partly the amount in excess of the nominal value. Section 59 of the Act requires each company to credit premium share price to a special "share premium account".

Permitted Application Of Share Premium Money Under The New Law:

Share premiums may be applied to:

• un-issued shares of the company to be issued to members of the company as fully paid up bonus shares in writing off preliminary expenses of the company or the expenses of, or the commission paid or discount allowed on, issue of shares or debentures of the company; or

• providing for the premium payable on redemption of any redeemable shares or of any debentures of the company.

The provisions of section 59 of the new Companies Act apply where the shares are issued for a consideration other than cash (meaning consideration in kind) and a sum equal to the excess value of the consideration must be credited to the share premium account to avoid the risk of dividends being paid out of the premium.

Directors are personally liable to a default fine if share premium amounts are not credited into the share premium account as provided by the law and are instead utilised to pay dividends without following the procedures provided with respect to reduction of paid up capital.

Section 59 (3) provides that where a company has before the appointed day (1st of March 2006) issued any shares at a premium, section 59 of the Act shall apply as if the shares had been issued after the appointed day save where the premiums have been so applied that it does not at the appointed day form an identifiable part of the company’s reserves.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.