Legal Recognition of Shadow Directors of Companies in Tanzania: Exploring the Options

Companies being abstract persons depend on natural persons to manage their daily transactions. Such individuals are called company directors. According to the Companies Act of 2002, the minimum numbers of directors in single and multiple membership companies are one and two respectively. The Act further mandates that their consent has to be filed with the Registrar of Companies. Directors are regarded as the brain of the company, as they control what it does. However, at times, the class of directors known as shadow directors, who have a latent stake in the company may indirectly control it. These individuals operate from behind the scene thereby raising the possibility of misconduct and unethical dealings. In severe cases, these can extend to tax evasion, corruption and money laundering, committed in circumstances which may create opportunities for them to escape accountability or liability. The absence of a robust legal framework on the identification and accountability of shadow directors seems to be an issue in many developing countries, including Tanzania. This paper through doctrinal research methodology examines the potential reliance on the Beneficial Ownership (BO) rules in identifying such shadow directors in Tanzania. It also draws upon the experiences of other common law countries. The paper concludes that rules on BO can help to identify shadow directors in Tanzania despite the absence of an express provision on shadow directors in the Companies’ Act. However, a long-term solution is to revise the law to incorporate shadow directors.