The Companies Act, 2015 was enacted and replaced the Companies Act 1948 on 11^th September 2015. The Act is to come into operation in stages. Validity of transactions will no longer be affected by restrictions in constitutional documents (Section 36). The amended law introduces a lighter-touch regime for private companies thus reducing the time and cost of business while ensuring that companies with public participation are subject to greater levels of scrutiny and accountability.

Significant Changes to Private Companies

A private company is comprised of 1 – 50 members.  There is no requirement for a company secretary in a private company unless the share capital is more than 5 million under Section 243.

The initial directors and secretary have to sign to consent to their office. Their consent includes their personal physical address which make it possible to track them down in case of any criminal liability. The companies registered office may be outside Kenya.

There is no requirement for an audited account for companies with a share capital of less than 5 Million shillings. Also, there is no requirement for objects of a company to be stated in the memorandum of association. The object clause in the memoranda of association of existing companies are deemed to be contained in the Articles but even then do no limit what the company does.

Insurance companies and banks have been expressly excluded from small company regime.

Meetings

The authority to hold a general meeting will be limited. A company auditor under this act will be able to call for meetings in limited circumstances relating to his resignation or removal from office.

The length of notice calling for general meeting for a private company is 21 days and members can consent to a shorter notice. Notice of a general meeting through hardcopy form, electronic form , website or by a combination of means has also been introduced.

Private company quorum is one (1) member while other company’s quorum is two (2) members ( Unless articles specify otherwise). Members present may elect 1 member to chair the meeting. The members have a right to demand a poll and appoint proxies reserved.

Extraordinary resolutions have been done away with. The Ordinary resolution under the new act is 50% plus one while a special resolution is 75%.

Special resolution is required in the following:

1. Authority to allot securities by the directors.
2. Approval of certain off market purchases.
3. Approval of payment out of capital for redemption or purchase of shares.
4. Introduction of written resolution. (1 vote per member)

 

Foreign Companies

Foreign companies must apply or register in Kenya under (Section 974 (1).  A company that is not registered is liable to a fine not exceeding Kshs 5,000,000. Alternative name in Kenya other than the corporate name may be used. There is a requirement that at least 30% shareholding must be held by Kenyan Citizens by birth. (Section 976 (2b))

The Act protects natural persons residential address from disclosure and a Local Board in addition to the foreign one. The Local representative not only receives process of service but complies with the Act and is liable for penalty imposed on the company. The Local representative has a duty to notify registrar of any changes

 

Directors

There is no distinction of directors (non-executive and executive) under the new Act.

General Duties of Directors

 

• Act within power or use power for the right purpose;
• Promote success of the company;
• Exercise independent judgement;
• Exercise reasonable care , skill and diligence;
• Avoid conflict of interest;
• Not accept benefits from 3^rdparties;
• Declare interest in proposed or existing transaction;

 

NB: The doctrine of ultra vires (acting beyond one’s authority) has been dispensed with.

 

Cost

The cost of incorporating a company in Kenya is ksh.10,000 for all companies regardless of the Nominal Share Capital. It is advisable to seek legal advice on the process though anyone can make an application for a new company on obtaining the requisite forms.

 

Ngugi Mburu is a Commercial and Litigation lawyer with a reputable Law Firm in Nairobi. Email: [email protected] for any enquiries or clarifications.