Corporate Groups under the Laws of Rwanda: An Economic Reality without Legal Identity

Dieudonné Nzafashwanayo

doi:10.4236/blr.2016.72010

Abstract

Corporate groups have become common in and dominate the business world. They emerge from reconfiguration of large companies into a multitude of subsidiaries from the simplest radial structure to the complex pyramidal and circular structures, in all structures, all companies within the group being ultimately held by a single parent company. Despite the omnipresence of corporate groups and their place in business world, their legal nature is yet to be seen whereas the use of this structure (corporate groups) to conduct business leads to tensions with traditional corporate law notions of each company being a separate legal entity and the blurring of lines of independence and modus operandi of corporate groups can be dangerous for creditors, employees, minority shareholders and pose challenges for regulators (such as taxman and anti-trust regulatory bodies) assessing the status of transactions conducted within the group. This article will discuss the notion of corporate groups under the laws of Rwanda and will argue that, albeit the fact that corporate groups (under traditional principles of corporate law) do not have legal existence, in some branches of law such as tax, anti-trust, employment, banking and finance law, the same have got a legal recognition and are treated as such. However, it will be submitted that the tenor of and challenges posed by corporate groups call for a clear recognition and stand of the legislator on the legal nature of corporate groups.

Highlights

Today, the business is becoming ever more global in reach, with cross-border business becoming a norm and the role played by corporate groups is critical
This has been spurred by the Rwandan Companies Act, albeit it does not refer to corporate groups in se, but the fact that it does allow companies to hold the majority shareholding in other companies, even on a hundred per cent basis makes the expansion of various companies to form multi-tiered corporate groups through incorporation of subsidiaries/wholly owned subsidiaries an inevitable economic reality
It is beyond any discussion that the use of corporate groups is an entrenched feature of the modern commercial world, where various companies enjoying their own legal personalities share common interests superseding particular interests of each among them and being under control of one of all of them, parent company

Summary

Introduction

The business is becoming ever more global in reach, with cross-border business becoming a norm and the role played by corporate groups is critical. In Rwandan context, the existence of corporate group is beyond any dispute, as currently company members of large groups, such as MTN Group, Engen Petroleum and Bharti Airtel to mention but three, have presence in Rwanda This has been spurred by the Rwandan Companies Act, albeit it does not refer to corporate groups in se, but the fact that it does allow companies to hold the majority shareholding in other companies, even on a hundred per cent basis makes the expansion of various companies to form multi-tiered corporate groups through incorporation of subsidiaries/wholly owned subsidiaries an inevitable economic reality. Transacting with their group member companies (Dickfos, 2011) In this regard, it is obvious that the economic phenomenon of corporate groups is not neutral in a legal perspective, but instead poses a number of legal issues and call for the law to respond to this modern model of business and, this paper will find out the legal treatment of corporate groups (if at all) under the laws of Rwanda. It will define the concepts of corporate group and establish its hallmarks (2), the structuring of corporate groups (3), advantages and disadvantages associated with corporate groups (4), the legal nature of corporate groups (5), intra-group relationship (6) and the conclusion and the way forward will be offered (7)

Corporate Group Defined

The Hallmarks of Corporate Groups

Corporate Group Structuring

Corporate Group: A Double Edged Sword

Legal Nature of Corporate Groups

Intra-Group Lending

Intra-Group Guarantee

Findings

Conclusion and Recommendations