A-Z Glossary of Terms

 

 

Our jargon busting guide to essential company formation terms

A

Accounting Period

The period of time covered in a Company Tax Return. Companies must pay income tax on all taxable income from that period. It will normally begin when trading starts. An accounting period cannot be longer than 12 months but it can be shorter.

Accounting Standards

The legal standards that companies statutory accounts must meet.

Active

The term applied to a company that is trading and ‘active’ for income tax purposes.

Allotment of Shares

This is the process of issuing (creating) more shares in a private limited company after it has been incorporated.

Annual Accounts

A statutory report detailing the financial activity of a company during its most recent 12-month financial year.

Annual Return

All limited companies must send an annual return to the Companies Registry at least once every 12 months to verify its registered details and update certain changes that may have taken place since the date of company registration or the date of the previous return.

Articles of association

Sometimes referred to as ‘articles of agreement’, this is a mandatory legal document that forms the constitution of a company. The articles outline the internal structure of a company, the rules it must adhere to, how it should be managed, and the rights and duties of directors and shareholders. ‘Model Articles’ are the most common.

Audit

An independent review of a company’s annual accounts, carried out by an accountant or auditor. The purpose is to ensure the financial statements are true and fair, prepared in accordance with the Companies and Other Business Entities Act, and meet the required accounting standards.

Auditor’s Report

An independent review given to the shareholders of a company that reports on the truth and fairness of the annual accounts submitted by the company directors.

Authorised Share Capital

A provision contained in the Companies and Other Business Entities Act that requires a limited company to restrict the total value of its issued shares to an authorised amount.

B

 

Balance sheet

A financial statement forming part of a company’s annual accounts. It should state all assets it owns and all liabilities it owes at a given point in time, as well as anything owing to the company. Shareholders, investors and creditors use balance sheets to review a company’s worth. Auditors will analyse the balance sheet as part of an audit of the annual accounts.

Board of directors

The collective term for the directors of a private limited company. When certain activities or issues require attention, the directors will hold a board meeting to discuss these matters and pass resolutions.

Board meeting

A meeting attended by some or all members of a company’s board of directors and any other permitted individuals.

Brand

The identity of a product, image or promise that is unique to a particular company. A brand is created to promote a company or product, make it stand out from its competitors, foster positive associations with consumers through clear messages and consistent delivery, and ultimately cultivate user loyalty.

Branding

The process of developing and maintaining a brand.

Brand equity

The value of a brand as perceived by consumers.

Branding strategy

A long-term plan defining the way in which a brand will be successfully communicated and delivered to consumers.

Business activity

This refers to any form of trading carried out by a company, such as: buying and selling goods, promoting the business, renting premises, accruing interest, managing investments, employing staff, providing services, and receiving income from any other source. A company that is actively trading is liable for income tax.

Business partner number

A unique ten-digit number issued by ZIMRA to all new companies upon registering for tax obligations. Used to identify individual companies for tax purposes. BP numbers can be found on any official documentation received from ZIMRA.

C

 

Certificate of Incorporation

A certificate issued to companies upon its incorporation. It serves as conclusive evidence of its legal existence under the Companies and Other Business Entities Act.

Certificate of Incorporation on Change of Name

See Certificate of Name Change

Certificate of Name Change

Also known as a Certificate of Incorporation on Change of Name, this is an official document issued by the Companies Registry to any company that changes its name after incorporation.

Chairman

A person appointed to preside over board meetings.

Company addresses

  • Physical address – Mandatory. The official address of a private limited company. It will be displayed on the public record.
  • Postal address – Mandatory.
  • Email address – Mandatory 

Companies and Other Business Entities Act (Chapter 24:32)

Primary legislation applying to companies and private business corporations

Company director

A person appointed to manage a company at the discretion of its owners. All private limited companies must have at least two directors who are natural persons aged 16 years or above. Directors are required to lawfully and conscientiously run a company for the benefit of its owners in accordance with the Companies and Other Business Entities Act and the articles of association.

Company documents

Official documents received after company registration, consisting of: Certificate of Incorporation, the Memorandum and articles of association, CR 6 and CR 5.

Company registration

The process of legally incorporating a company or Private Business Corporation with the Companies Registry. Registering a company allows it to exist as a distinct legal entity that is separate from its owners and responsible for its own debts.

Companies registry

The Registrar of Companies in Zimbabwe, and an executive agency of the Government. To be legally incorporated and permitted to operate as a company or private business corporation, a company must be registered with the Companies Registry in Zimbabwe

Company incorporation

See Company Registration

Company limited by guarantee

A distinct legal entity and a type of company structure normally registered by non-profit organisations and charities. It must be owned by at least one guarantor and managed by at least one director. The personal liability of the guarantors is limited to the amounts of their guarantees, which must be paid if the company is unable to pay its bills.

Company limited by shares

A distinct legal entity that is ideal for those who want to make and distribute profit, enhance their credibility and status, and restrict the personal liability of the owners. It must be owned by at least one shareholder and managed by at least one director. The personal liability of the shareholders is limited to the value of their shares.

Company name

A unique name chosen during the incorporation process. The Companies Registry displays all company names on public record. No two names may be the same or ‘too similar’.

Company officers

A collective term for directors and secretaries. Company officers are appointed to lawfully run and manage a company by and on behalf of its owners.

Company register

The statutory records held by a private limited company at its registered office. The register should contain all relevant details about a company, its officers and members, its share capital, and all other required statutory information. It must be made available for inspection.

Company registration

See Company Formation

Company Registration Number (CRN)

Is a unique number issued to all new companies upon incorporation. A CRN is used to identify a company and it will be displayed on the Certificate of Incorporation and all company registration documents, the public register of companies, and all statutory correspondence from the Companies Registry.

Company shareholder

The persons owning all or part of a private limited company through the purchase or acquisition of shares. The liability of shareholders is limited to the amount of shares they own. Shareholders may also be directors.

Company seal

A hand-held tool used to print or emboss a company’s name or logo on a document. It is a modern-day version of a red wax seal of authentication.

Company secretary

A person or firm appointed to assist a company director with his or her duties and responsibilities.

Company stationery

This term refers to all documents and material produced by a company such as: letterheads, compliments slips, invoices, receipts, order forms, emails, websites, online material, information leaflets and booklets, catalogues, and visual advertisements. Companies are legally required to display their name and other statutory information clearly and consistently on all forms of stationery.

Company Tax Return

A requirement of any company that is actively trading and liable for income tax.

Corporate director

A company or firm appointed as a director of another company. A corporate director will nominate an ‘authorised person’ to act on its behalf. To appoint a corporate director, at least one other director must be a natural person (human).

Corporate secretary

A company or firm appointed as the secretary of another company.

Corporate shareholder

A company or firm that owns shares in another company.

CRN

See Company Registration Number

D

Debenture

A document acknowledging a long-term loan agreement between a company and a lender. The loan will normally be secured against a company’s assets.

Deferred ordinary shares

A class (type) of share in a limited company. Dividends will be paid on these shares only when all other classes of shares have been paid.

Designated member

Members of a Limited Liability Partnership who are formally appointed to ensure the LLP and its members adhere to all legal obligations and filing requirements. LLPs must have a minimum of two designated members at all times. Alternatively, all members may be designated.

Director

Also known as a ‘company officer’, a director is a person or corporate body appointed by shareholders to manage the daily activities of a company. Minimum age requirement of 16. A minimum of one director is required to form a company, but there is no limit to the number of directors that can be appointed during or after incorporation. A director can also be shareholder.

Director’s Loan

Money that is taken from a company and given to a director, other than his or her salary or dividend payments, that exceeds the amount of money the director has put into the company. A director’s loan may be used to repay money a director has put in, or it may be used by a director to borrow money from the company that will be paid back at a later date. If you contribute any funds – including start-up capital – to your business bank account at any time after incorporation, this will be considered a director’s loan to the company and you can reclaim it without facing any tax consequences.

Directors’ Loan Account

This loan account records all money put into a company by a director, and all money taken out by a director as repayment for a loan or in excess of any money put into the company.

Disqualified director

The removal of a director who has failed to uphold his or her legal duties and responsibilities as stated in the Companies and Other Businesses Act (Chapter 24:32). Any director whose conduct is deemed ‘unfit’ can be disqualified and banned from acting as a director or having any involvement in the running of a company.

Dividends

Sums of money paid (usually on an annual basis) to shareholders as a means of distributing profits. Dividends can also be paid as shares of stock.

Domain name

The identity of a web page or group of web pages unique to a particular user. Example – companies.co.zw is our domain name.

Dormant Company

A company that is not trading or receiving any other kind of income is considered ‘dormant’ for income tax purposes.

F

Formation Process

Also known as the ‘company formation’, ‘company registration’ or ‘company incorporation’, it describes the process of incorporating a company with the Companies Registry. This process can be carried out via the Companies Registry  through a company registration agent.

Filing deadlines

The deadlines for delivering annual returns or declaration of annual general meeting to the Companies Registry, and the final date for delivering Tax Returns to ZIMRA.

G

Guarantee

A financial commitment made by the guarantor of a company limited by guarantee, whereby the amount of the guarantee will be paid to cover the company’s debts, if required.

Guarantor

The owner of a company limited by guarantee. A guarantor can be a person, an organisation or a corporate body. Guarantors provide security in the form of guarantees – the amount of a guarantee limits the personal liability of the guarantor. Guarantors are also known as ‘members’ and you will need a minimum of one member to set up a company limited by guarantee. Guarantors may also be directors.

H

Holding Company

Also known as a ‘parent company’, it is a private limited company that is set up to acquire shares in another company (known as its ‘subsidiary’) or manage the activities of another company.

I

Issued shares

The total number of shares a company has issued to shareholders. This creates the share capital and determines the total financial liability of the shareholders. A minimum of one issued share (per shareholder) is required to form a company.

Issuing Shares

The process of giving or selling portions of a company by issuing shares to new or existing shareholders. At least one share must be issued when a company limited by shares is incorporated.

More shares can also be issued (allotted) after incorporation, if required. Directors will usually have the authority to issue more shares but they must refer to the articles of association before doing so to check for any restrictions.

J

Late Filing Penalties

Fines imposed upon a company and its directors if the annual returns or declaration of annual general meeting are delivered after the statutory filing deadlines.

Limited

This refers to ‘limited liability’ which is the reduced financial obligation of shareholders or guarantors to pay business debts from their personal finances. A limited company is a distinct legal entity responsible for its own debts. All limited companies must include ‘limited’, ‘Ltd’, or ‘LTD’ at the end of their name, unless they are eligible for exemption.

Limited by guarantee

A legal structure mostly used by non-profit organisations and charities. Must be registered with the Companies Registry. Companies limited by guarantee have no share capital or shareholders – they have guarantors whose personal liabilities are limited to the amounts of their guarantees.

Limited by shares

The most popular type of private company, used by those who want to make a profit and distribute the surplus income to the owners. Companies limited by shares are owned by shareholders and managed by directors. The limit of each shareholder’s liability is restricted to the value of his or her shares.

Limited company

An incorporated company with limited liability in the form of shares or guarantees. It exists as a distinct legal entity.

Limited liability

A form of financial protection – the reduced liability imposed upon the owners of a limited company. The financial liability that owners have towards paying debts, is limited to the value of their shares (companies limited by shares) or the amounts of their guarantees (companies limited by guarantee).

M

Management shares

A class (type) of share in a limited company. Each management share carries multiple votes. Often used by the original shareholders also known as ‘subscribers’ as a way of retaining more control than new shareholders.

Members

Another name for the shareholders or the guarantors of a private limited company.

Memorandum of association

One of the official documents required by limited companies during the company registration process, in addition to the articles of association. It contains the names of all subscribers (shareholders or guarantors), and indicates their intention to form and become members of the company.

Minutes of meetings

A record or account of all matters discussed in a Board Meeting (of directors) or General Meeting (of shareholders), all decisions made, and all persons in attendance.

N

Nominal Value

Relating to company shares – the amount a shareholder has paid or is liable to pay for each share he or she has taken in a company. This is not the same as the actual (market) value of a share. The nominal value of a company’s issued shares determines it’s total share capital and the total liability of the shareholders. Typically, shares have a nominal value of ZWL1..00.

Nominee director

A person or company appointed on behalf of another person or firm to be registered with the Companies Registry as a non-executive ‘name only’ director of a Private Limited Company. Nominee directors can be appointed by directors who wish to remain anonymous and keep their personal details off the public record.

Nominee secretary

A person or company appointed on behalf of an official company secretary to act in a non-executive ‘name only’ capacity as a company secretary. Nominee secretaries can be appointed by anyone wishing to maintain their privacy and prevent their personal details being disclosed on public record.

Non-voting shares

A class (type) of share, issued as a tax-efficient form of payment for employees. The shareholder will have no voting rights.

O

Ordinary resolution

A collective decision or agreement made by the shareholders or directors. A simple majority vote (above 50%) must be achieved to pass an ordinary resolution. This is one of the most common types of resolution that is used for all business-related matters, except where the articles or the Companies and Other Business Entities Act (Chapter 24:32) requires a special resolution to be used.

Ordinary shares

The most popular class of share issued by Private Limited Companies. Ordinary shares are a standard class of share, with each one usually offering equal voting rights, equal capital rights and equal dividends payments to all shareholders.

P

Pre-emption rights

A provision that can be included in a company’s articles of association to protect the rights of existing shareholders. With pre-emption rights, new shares must be offered to existing shareholders for first-refusal before being offered to new shareholders.

Preference shares

A class (type) of share providing shareholders with a preferential right to receive dividend payments before other shareholders. Preference shares are often non-voting.

Prescribed particulars

The rights attached to shares issued by a private limited company. Prescribed particulars will be outlined in the articles of association.

Private limited company

A privately owned company limited by shares. Not to be confused with a Public Limited Company (PLC).

Profit and loss account

Required as part of a company’s full annual accounts (statutory accounts). This section of the accounts will show the financial performance of a company during its most recent financial year – sales, cost of sales, gross profit, expenditure, net profit.

Public Register of Companies

The official register containing details of all incorporated companies. The information contained on the Companies Registry register is available to all members of the public.

R

Rebranding

Rebranding is the process of changing the corporate image of an organisation. It is a market strategy of giving a new name, symbol, or change in design for an already-established brand.

Redeemable Shares

A class (type) of share. Often given to an employee with the agreement to be bought back after a fixed amount of time. Redeemable shares are normally taken back by a company at their nominal value if an employee leaves.

Registered office

The official address of a Private Limited Company where statutory mail will be delivered. It must be a full, physical postal address and it must be situated in the same country in which the company is registered. Companies must keep their statutory records at their registered office and make them available for public inspection. You must provide registered office details when you register a Private Limited Company and this information will be disclosed on public record. You can change its location at any time after the company is registered, as long as it stays in Zimbabwe.

Resolutions

A decision or agreement reached by a majority vote of the directors or shareholders. All resolutions passed by directors and shareholders are legally binding.

Return of Allotment of Shares

Companies Registry Form CR 8. This must be completed and filed with Companies Registry within one month of allotting (issuing) new shares.

S

Sensitive words and expressions

Certain words and phrases that require approval from the minister of Justice and Parliamentary affairs or other authorising body before being included in a company name. Supporting documentation or evidence must be provided if a sensitive word or expression is used in a registered company’s name.

Shares

A unit of ownership of a company limited by shares. Ownership can be divided into any number of shares of any value. Shares are owned by individual people or corporate bodies known as ‘shareholders’. The number and value of their shares determines: their percentage of ownership, the amount of control they have, their financial liability for business debts, and how much profit they receive.

Shareholder

Shareholders are also known as ‘members’. A shareholder is a person or corporate body that owns shares in a Private Limited Company. The first shareholders of a company are called ‘subscribers’. Shareholders are entitled to receive a portion of company profits in relation to the number and value of their shares.

Shareholders are not responsible for the day-to-day management of a company, unless they are also directors. Generally, shareholders will only make decisions about significant issues, such as changing the company name, removing a director, changing a director’s powers and altering the articles of association.

Shareholders’ agreement

A legal contract between the shareholders. The primary purpose of a shareholders’ agreement is to outline the rights of each shareholder. It can protect minority shareholders and a company as a whole from the majority voting powers of other shareholders.

Share Capital

The total amount of money shareholders invest in the company in exchange for shares.

Share Certificate

A certificate of ownership of shares. Each shareholder should be issued with a share certificate upon taking shares in a company. The certificate should state: the number, value and class of shares taken; the amount paid or unpaid on the shares; the name of the shareholder; and the date the share ownership commenced.

Share Class

A ‘type’ of share in Private Limited Companies. The most popular share class is ‘ordinary’. Other share classes include: preference shares, non-voting shares, management shares, and redeemable shares.

Share issue

The process of issuing units of ownership (shares) in a company to people or corporate bodies. Upon taking issued shares, a person or corporate body becomes a shareholder (owner). Shares are issued during the incorporation process, and new shares can be issued or ‘allotted’ at any time after company registration.

Share transfer

The process of giving or selling shares to another person or corporate body.

Small Company

Companies are grouped into three sizes for the purpose of …

SMEs

Small and medium-sized enterprises.

Sole Trader

A self-employed individual.

Special resolution

A legally binding decision achieved by a 75% majority vote of shareholders. Special resolutions are usually passed for significant and rare decisions that directors are not permitted to make.

Subscribers

The original shareholders or guarantors of a Private Limited Company who agree to form and become part of a company by subscribing to the memorandum of association during company registration.

Supporting documentation

Documentation that permits the use of ‘sensitive’ words or phrases in a company name, as governed by the Companies and Other Business Entities Act (Chapter 24:32) Any such documentation must be filed with the Companies Registry along with the application to register a company or upon registering a new company name with sensitive words after incorporation.

U

Usual Residential Address

Where a director, secretary etc. resides. It is required by the Companies Registry when a director, secretary or person principal officer is appointed.

V

VAT

Value Added Tax. You will have to register your company for VAT when its annual income exceeds the threshold set by ZIMRA.

Voluntary VAT Registration

Choosing to register for VAT when a company’s turnover is less than the threshold for compulsory VAT registration.

Voting Rights

A right attached to certain share classes that gives a shareholder the right to vote on company matters.

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Mobile: 077 470 9378

Email: info@companies.co.zw

Copyright 2022 © Companies Made Simple