Consequently, the buyer is obliged to perform due diligence to verify fulfillment of needs and mitigate potential risks. The parties should assess the likelihood of any transfer conditions and the potential impact. Some of these considerations include; 

1. Prior to effecting a transfer, a shareholder must give due consideration to pre-emption rights. A pre-emptive right confers upon a shareholder the privilege of acquiring additional shares in a company prior to their issuance to the public. This entitlement is typically enshrined in the shareholder agreement. 
2. Further, one need to carefully examine the company’s Articles of Association and any relevant shareholders’ agreements for potential restrictions or conditions on share transfers e.g. the “lock in period” clause prevents shareholders from selling their shares or securities for a specific period of time 
3. A company’s articles of association form a binding contract between the company and its shareholders. Any restrictions on share transfers outlined in these articles are enforceable as contractual terms. 
4. Evaluate whether the proposed share transfer is subject to the Competition Act of Kenya’s mandatory notification requirements and, if applicable, requires approval under the Capital Markets (Takeovers and Mergers) Regulations, 2002 and whether it is subject to other industry-specific regulations such as those of the Communications Authority of Kenya. 
5. The departure of a shareholder can significantly impact existing commercial contracts. It is essential to evaluate how a share transfer might affect supply agreements, intellectual property licenses, secondment arrangements and other contractual relationships. These implications should be carefully assessed and addressed within the shareholders’ agreement or the contracts themselves. 
6. Another crucial element to take into account is the formal approval of the share transfer by the board of directors, expressed through a board resolution. 

It is important to note that when a transfer is hindered by the company’s articles, shareholders have the power to alter the articles to permit the transfer, either for all future transfers or solely for the current situation. Additionally, shareholders may choose to temporarily waive pre-emption rights without altering the company’s articles. 

Effectuating a seamless share transfer requires a meticulous approach that harmonizes legal, contractual and corporate governance imperatives. While the complexities involved can be intricate, proactive identification and management of potential challenges are crucial. By conducting comprehensive due diligence and enlisting expert support, concerned parties can navigate this process with confidence. 

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A Digital Credit Provider (DCP) is a financial institution that uses digital platforms like websites and mobile apps to provide loan products and services. Borrowers can apply for, receive and repay loans entirely online without needing to visit a physical branch. 

Some examples of DCPs include fintech lenders with mobile loan apps, mobile banking platforms with credit features, mobile network operators offering airtime advances and Buy Now Pay Later providers. 

Kenya’s DCPs are governed by the Central Bank of Kenya (Digital Credit Providers) Regulations 2022 “Regulations”, which were introduced under the amended Central Bank of Kenya Act of 2021. The DCP regulations in Kenya were passed to address concerns about the growing digital lending industry such as; 

1. Consumer protection: The Regulations crack down on predatory lending, hidden fees, and aggressive collection tactics by some digital lenders. This aims to create a fairer lending environment for borrowers. 
2. Transparency: Opaque loan terms left borrowers confused and potentially vulnerable. These terms often lacked clarity on crucial aspects like interest rates, fees, repayment schedules and late payment penalties. The regulations aim to clamp down on this by ensuring clear and easy to understand loan details. 
3. Corporate Governance: Prior to the implementation Regulations, the digital lending space while experiencing a boom in convenience and accessibility between 2014 and 2019, lacked established practices and safeguards, raising concerns on governance. These concerns centered around issues like board governance, accountability and ethics. The Regulations address these concerns by prescribing corporate governance principles that establish a framework for responsible lending. 

Beyond the core Regulations, DCPs in Kenya must also play by the rules set out in wider laws. This includes adhering to the Data Protection Act, Consumer Protection Act and the Proceeds of Crime and Anti-Money Laundering.  

Registration of a DCP 

To operate as a DCP, a license from the CBK is mandatory under the Regulations. DCP licenses are valid for one year, subject to renewal by December 31st. The CBK publishes the names and addresses of licensed DCPs within 30 days of issuance in the Gazette and on their website. A recent press release from the CBK in March 2024 indicated that there are now 51 licensed DCPs operating in Kenya. 

To obtain a DCP License, entities must be registered as a Company and should initiate registration with the Office of the Data Protection Commissioner’s Office (ODPC). These registrations are mandatory compliance documents for the CBK application process. 

The key requirements for the formal application to CBK are as follows; 

1. Application Forms: Complete CBK DCP 1 form detailing your company and proposed DCP business. 
2. “Fit and Proper” Assessments: Directors, CEO, Senior Officers and significant Shareholders need to fill out “Fit and Proper” forms (CBK DCP 2 & 3) to assess their suitability. 
3. Business Plan: A detailed plan outlining your digital credit business model, target market and risk management strategies. 
4. Financial Information: Evidence demonstrating the legitimacy and source of funds for your investment. 
5. Policies: Copies of your Data Protection Policy, Consumer Protection Policy, Dispute Resolution Policy and Terms & Conditions for lending services. 
6. Technical Capacity: A copy of the service provider agreement, IT system description and independent assurance report on the systems. 
7. Anti-Money Laundering (AML) Measures: Plan for identifying and verifying customer identities and preventing money laundering activities. 
8. Compliance Documents: Copies of certificate of good conduct, tax compliance certificate and credit reference bureau report for each of the digital credit provider’s individual significant shareholders, directors, chief executive officer and senior officers. 

Reporting Obligations 

1. Each year by December 31st, DCPs are required to submit a report to the CBK confirming their compliance with the relevant Act and the Regulations. 
2. DCPs are required to notify the CBK not less than 30 days before any significant changes occur within their shareholding, board composition, management structure or the appointment of new directors, CEOs, or senior officers. 
3. Also required to pay a yearly license fee by the end of December 31st. 
4. Before getting any outside funding or investment, DCPs need to notify the CBK at least 30 days in advance. 
5. If a DCP experiences a personal data breach, they must report it to the ODPC 72 hours of becoming aware of the incident.

Conclusion 

While the 2022 DCP Regulations have brought much needed order to digital lending, a potential loophole remains. Section 2 of the Central Bank Act defines a “digital credit business” as one operating solely through digital channels. This raises concerns; could lenders using traditional methods to escape regulation?  

Additionally, the while the Regulations established a deadline of September 2022 for existing digital lenders to obtain licenses, a lack of clarity regarding consequences for non-registration creates a temporary grey area. This ambiguity may have act as a loophole for some unregulated lenders to continue operating beyond the deadline. 

Overall, the risks of operating an unlicensed DCP in Kenya are significant for instance criminal sanctions, reputational damage and difficulty accessing funding. It is highly recommended for DCPs to comply with the CBK Regulations and obtain the necessary licenses to operate legally and avoid potential sanctions. 

The industry is also witnessing some trends, such as the adoption of open banking (enhanced with cybersecurity measures) as an innovation strategy and the establishment of regulatory sandboxes, which can be instrumental in fostering a healthy and innovative DCP landscape within a well-regulated environment. 

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Principles of Ethical Leadership 

Ethical leadership in governance is guided by several key principles: 

• Transparency: Ethical leaders operate in an open manner, providing clear and accessible information about their decisions and actions. This transparency helps to demystify governance processes and allows for greater public scrutiny and involvement. 
• Accountability: Leaders must be accountable to the people they serve. This involves taking responsibility for their actions, being willing to explain and justify decisions, and accepting the consequences of their actions. 
• Fairness and Justice: Ethical leaders treat all individuals and groups with fairness, ensuring that decisions are made impartially and justly, and that there is an equitable distribution of resources and opportunities. 
• Respect for Stakeholders: Respecting the rights, dignity, and perspectives of all stakeholders is essential. This includes actively listening to and engaging with the community, valuing diverse opinions, and fostering an inclusive environment. 
• Commitment to the Public Good: Leaders should prioritize the welfare of the public above personal or political gain. This means making decisions that benefit society as a whole and addressing the needs and concerns of the most vulnerable populations. 

Practices for Promoting Ethical Leadership 

To promote ethical leadership in governance, several practices can be adopted: 

• Creation of awareness through ethics training and education: Regular training and education on ethical standards and decision-making can help leaders and public officials understand and implement ethical practices. 
• Development of Ethical Policies: Developing and enforcing comprehensive ethical policies and codes of conduct ensures that there are clear guidelines for acceptable behavior and accountability mechanisms. 
• Leadership by Example: Leaders should model ethical behavior in their daily actions, demonstrating a commitment to integrity and ethical conduct. 
• Encouraging whistleblowing: Creating a safe environment for whistleblowers to report unethical behavior without fear of retaliation can help uncover and address misconduct. 
• Community Engagement: Actively involving the community in governance processes can enhance transparency, build trust, and ensure that decisions reflect the public’s needs and values. 

Ethical leadership in governance is essential for building trust and integrity within public institutions. By adhering to principles such as transparency, accountability, fairness, and respect for stakeholders, and by implementing practical measures to promote ethical behavior, leaders can foster a culture of integrity that benefits society as a whole. In an era where public trust is often eroded by instances of corruption and unethical conduct, the importance of ethical leadership cannot be overstated. It is through the steadfast commitment to ethical principles that leaders can truly serve the public, earning the trust and respect of the communities they govern. 

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A branch company, similar to a branch office is a satellite location set up by a company in a different geographical region than its headquarters. In contrast to a subsidiary which functions as an independent legal entity, a branch operates as an extension of the main company and shares the same legal structure. A key distinguishing factor between the two is the separate legal entity of the subsidiary meaning it can be sued independently and it manages its own finances and benefits from the tax advantage. With regards to tax advantages, the major difference comes in when paying taxes because a branch company will be taxed at 37.5 % corporation income tax while a subsidiary company will be taxed at a resident rate of 30%.

It is important to note that in both, the parent company wields influence through direct control or by holding a majority ownership stake i.e. more than 50%. In addition, both can leverage the parent company’s brand identity (slogans, logos) and established procedures in their operations.

Companies create subsidiaries for various reasons including limiting liability (protecting the parent company from the subsidiary’s debts), entering new markets or pursuing tax advantages. Another key advantage of subsidiaries is that they can adapt their operations, products and services to satisfy local customer preferences and comply with regional regulations. Conversely, a branch dependence on the parent company can hinder its ability to adjust to local market conditions and regulations.

Subsidiaries incur substantially higher setup costs due to the need for independent documentation, licenses, banking and payroll systems, compared to the streamlined procedures of branch offices.

For multinational companies targeting diverse markets with distinct customer preferences, a subsidiary structure can be advantageous. Nestlé Kenya Limited as a subsidiary has the autonomy to tailor its product offerings to the Kenyan market. Nestlé’s focus on market customization allows them to address the specific cultural preferences, purchasing power, and economic realities of Kenyan consumers. This is evident in their product portfolio, which includes Milo, Cerelac and Nescafe.

Similarly, if the goal is to leverage reputation established in by the parent company, a branch structure might be more suitable. Branches as extensions of a central entity benefit from the parent company’s existing reputation.

When venturing into foreign territory, intellectual property (IP) protection becomes paramount. A subsidiary as a separate legal entity, can register IP (trademarks, patents, copyrights) in its own name. This provides stronger protection and control over the IP assets in the new territory. In contrast, a branch office operates under the same legal structure as the parent company. So, the parent company’s existing IP registrations would typically extend to the branch’s operations. However, if a branch operates as a franchise, there might be specific agreements regarding IP usage. The franchise agreement be essential in outlining the holder of the IP rights and any limitations on use by the branch.

By establishing a Kenyan subsidiary to hold intellectual property, you can ensure efficient IP management and licensing. This structure also facilitates enforcement of your IP rights within the Kenyan legal system.

In conclusion, choosing between a subsidiary and a branch for your international expansion depends on several factors, including your risk tolerance, level of control desired and tax implications. Carefully weigh the pros and cons of each structure in the context of your specific business goals and international ambitions to make the most informed decision for your venture’s success.

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 1. Setting up a Branch Office 

Establishing a branch office is a popular choice for foreign companies seeking to operate in Kenya without the need for a separate legal entity. A branch office operates as an extension of the parent company and conducts business under its name. While offering operational flexibility, it is worth noting that a branch office does not have its own legal personality, making the parent company liable for its debts and obligations. 

2. Subsidiary Company 

Forming a subsidiary company provides foreign entities with a distinct legal entity in Kenya. This option offers liability protection, as the subsidiary operates as a separate legal entity from its parent company. Setting up a subsidiary involves registering a new local company with the Kenyan authorities and obtaining the required licenses. Despite the initial setup costs, a subsidiary company offers autonomy in decision-making and mitigates risks associated with the parent company. 

3. Joint Venture: 

Collaborating with a local partner through a joint venture can be an effective way for foreign entities to enter the Kenyan market while leveraging local expertise, resources, and networks. Joint ventures allow for shared risks and rewards between the foreign entity and its local partner, enabling access to specialized knowledge of the local market and regulatory landscape. However, establishing a successful joint venture requires careful consideration of factors such as partner selection, profit-sharing arrangements, and risk management strategies. 

4. Special Economic Zones (SEZs): 

Kenya offers designated SEZs aimed at attracting foreign investment and promoting export-oriented industries. SEZs provide favorable tax incentives, streamlined regulatory processes, and infrastructure support to encourage investment and industrial development. Foreign entities setting up operations within SEZs can benefit from a conducive business environment and access to global markets. 

5. Franchising: 

Franchising presents another avenue for foreign entities to enter the Kenyan market by partnering with local franchisees. This model allows for the replication of a successful business concept under a franchise agreement, providing the foreign entity with brand presence and revenue streams while leveraging the local market knowledge and operational capabilities of the franchisee. 

In a nutshell, foreign entities exploring opportunities in Kenya have a range of options for establishing a presence tailored to their specific objectives and preferences. Whether through branch offices, subsidiary companies, local companies, joint ventures, SEZs, or franchising arrangements, navigating the entry process requires careful planning, adherence to local regulations, and consideration of market dynamics. With the right strategy and support, foreign entities can position themselves for success in Kenya’s dynamic and evolving business environment.  

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Whistleblowing serves as a mechanism for promoting transparency, honesty, accountability and ethical conduct in institutions. It serves as a safeguard against corruption, corporate malfeasance, corporate abuse, and various forms of wrongdoing that can harm companies, individuals, communities, or society at large.  

From uncovering financial fraud and environmental violations to revealing violations of human rights, whistleblowers play a pivotal role in holding institutions and individuals accountable for their actions. 

Whistleblower protection laws, regulations and policies are designed to shield individuals from retaliation for reporting such misconduct. Whistleblower protection typically involves legal safeguards and mechanisms to ensure that individuals who come forward with information are not subjected to adverse actions such as termination, demotion, harassment, or other forms of retaliation. These protections encourage individuals to speak up about wrongdoing without fear of reprisal. 

Developing a corporate whistleblower framework involves careful consideration of various factors to ensure effectiveness, fairness, and compliance with legal and ethical standards. Some key considerations are:  

1. Clear Policies and Procedures: Establishment of  clear and comprehensive policies outlining the process for reporting misconduct, including who to report to, how to report, and protections for whistleblowers. 
2. Confidentiality and Anonymity: Provision of mechanisms for whistleblowers to report concerns confidentially/anonymously to protect them from retaliation and maintain trust in the process. 
3. Investigation Protocol: Execution of a structured and impartial process for investigating reported concerns, ensuring thoroughness, fairness, and confidentiality throughout the investigation. Entities should adhere to data protection considerations regarding the collection, processing, and storage of personal data obtained through whistleblowing channels. 
4. Training and Awareness: Provide multiple communication channels for reporting misconduct, including anonymous hotlines, online portals, and designated contacts within the organization. Additionally, there is need to educate employees about the whistleblower policy, their rights and responsibilities, and the importance of reporting misconduct.  
5. Legal Compliance: Ensure that the whistleblower framework complies with relevant laws and regulations governing whistleblowing. 
6. Continuous Improvement: Regularly review and update the whistleblower framework to incorporate feedback, address emerging issues, and adapt to changes in the organizational and regulatory environment.  

In Kenya, the foundation for whistle blowing is found in the Bribery Act of 2016,  the  Proceeds of Crime and Anti-Money Laundering Act, Leadership and Integrity Act, 2016 Public Officer Ethics Act, 2003, Public Finance Management Act, 2012 among other critical legislation.  

The Bribery Act, 2016 was enacted to address the prevention, investigation, and punishment of bribery, as well as related matters. In 2021, the Attorney General in collaboration with the Ethics and Anti-Corruption Commission (EACC) published Guidelines pertaining to the Bribery Act. These guidelines sought to implement Section 9 of the Act, which mandates both public and private organizations to develop procedures for preventing corruption and bribery.  

Part II of the Guidelines outline the principles to be included in the framework for prevention of bribery and corruption which provide a guide for institutions on how to implement a whistleblower system. The Guidelines require establishment of written procedures; risk assessment and management; implementation structures; reporting mechanisms; protection of whistle blowers, informants and witnesses; awareness creation through communication and training; enforcement procedures; monitoring, evaluation and review and cooperation and collaboration by various actors.  

The legal consequences for not establishing a whistle-blower framework are outlined in Section 9 and 18  of the Bribery Act, 2016. The Act provides that a director or senior officer of a private entity, or someone acting in such a capacity, is deemed to have committed an offense if they fail to develop procedures for prevention of bribery and corruption. This offense carries a penalty of a fine of up to Five million Kenya Shillings (KES 5 million), or imprisonment for a maximum of ten years, or both. 

Bellmac Consulting LLP provides an extensive array of professional services, encompassing Corporate Governance and Compliance, Company Secretarial,  Board Evaluation, Governance Audits, Management Consulting, Financial Advisory Services, and Human Resource Consultancy. Our services cater to a diverse clientele spanning various sectors in Kenya and the broader East and Central Africa region. 

We provide proactive strategies for ensuring legal compliance and assist organizations in preparing essential documents including Board Charters, Conflict of Interest Policies, Codes of Conduct and Ethics and Whistleblowing Policies. We assist organisations establish robust whistleblowing frameworks, empower Board, management and employees to foster a culture of transparency and accountability and  assist entities safeguard their integrity and reputation.  

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These committees are tasked with specific responsibilities, allowing for in-depth focus and expertise in key areas. Understanding the composition and structure of these committees is crucial in comprehending the dynamics of corporate governance. 

Board committees are typically comprised of members of the board of directors, chosen based on their expertise, experience, and interest in specific areas of governance. 

The composition and number of Committees may vary depending on the organization’s size, industry, and specific needs.  For instance:  

• For State Corporations:  Mwongozo, the Code of Governance for State Corporations prescribes that the Board of the State Corporation  should establish not more than four committees of the Board provided that the Board shall be at liberty to establish such ad-hoc committees as required to deal with any matters requiring focused attention. 
  Further, the Code prescribes that the State Corporation must establish an Audit Committee, and a maximum of three other committees to discharge the following functions: Governance, Technical matters, Risk,  Strategy,  Compliance , Human Resources and Finance.  

• For Listed Companies  : The CMA Code of Corporate Governance Practices for Issuers of Securities to the Public 2015  provides that Board shall establish committees to cover broad functions of the company such as: audit, board nominations, risk management, remuneration, finance, investment and governance. The Code explicitly provides that the audit committee shall comprise of  at least three independent and non-executive directors and that the chairperson of the nomination committee shall be an independent director.  
• For Banks in Kenya: The Prudential Guidelines for Institutions Licensed under the Banking Act mandate the establishment of specialized committees by the Board. Nevertheless, the Board retains responsibility and accountability. The number and nature of committees depends on many factors, including the size of the Bank and its board, the nature of the business areas of the Bank, and its risk profile. However, the Audit Committee, Risk Management Committee and Credit Committee are mandatory.  
• Regulated Sacco Societies in Kenya: The SASRA Guidance Notes on Corporate Governance stipulate that DT-SACCOs shall constitute Committees of the Board consisting of Credit Committee, Audit and Risk Committee and any other two Committees as maybe defined in their By-Laws and NWDT-SACCOs shall constitute Committees of the Board consisting of Credit Committee and any other two Committees.  

While the structure of board committees can differ based on various factors including the applicable regulatory framework as highlighted, there are several common types of board committees. These include:  

Audit Committee: This committee is responsible for overseeing the financial reporting process, internal controls, audit processes, and compliance with legal and regulatory requirements. Members of the audit committee often possess financial expertise, such as accounting or auditing backgrounds. 

Growth, Strategy and Development Committee: This committee focuses on long-term strategic planning and development. It assesses market trends, competitive landscape, and opportunities for growth, providing guidance to the board on strategic direction and initiatives. 

Risk Management Committee: The risk management committee identifies, assesses, and monitors various risks faced by the organization, including financial, operational, strategic, and reputational risks.  

Nomination and Governance Committee: It is also referred to as the nominating committee in some organisations. This Committee is responsible for recommending individuals for election to the board of directors and overseeing corporate governance matters. The committee evaluates the composition of the board, assesses director performance, and develops governance policies. 

Credit Committee: It is tasked with evaluating the creditworthiness of potential borrowers, reviewing and approving/rejecting credit applications, ensuring they align with the organization’s credit policies and risk tolerance. The committee also contributes to the development and revision of credit policies and procedures to maintain prudent lending practices and compliance with regulatory requirements. 

Compensation Committee: The Committee oversees executive compensation and ensures that compensation practices align with the company’s goals, performance, and industry standards. Members of the compensation committee often have backgrounds in human resources, finance, or executive management. 

Conclusion: 

Board committees play a critical role in enhancing corporate governance and facilitating effective decision-making. By understanding the composition and structure of these committees, stakeholders gain insight into functioning of governance mechanisms and delineation of responsibilities for long-term organizational success. At Bellmac Consulting LLP, we are ready to assist you with developing your Board Charter, structuring your Board Committees and drafting Terms of Reference for your Committees.  

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In September 2023, the President assented to law the Anti-Money Laundering and Combating of Terrorism (AML/CFT) Financing Laws (Amendment) Act, 2023. In October 2023, the Attorney General published the Companies Beneficial Ownership Information Amendment Regulations, 2023 and the Limited Liability Partnership Beneficial Ownership Regulations, 2023 to operationalize the broader principles of the New Act and provide detailed guidelines and specifications that support the implementation and enforcement of the legislation.   

The New Act has incorporated various provisions affecting corporate entities in an endeavor to harmonize Kenya’s AML/CFT laws with global standards. Although the new legislation doesn’t bring about a complete overhaul of the corporate governance and business practices in Kenya, it does, however, establish a more rigorous framework that demands significant compliance. Some key features of the new law include:   

A. Changes affecting the Companies Act, 2015

1. Clauses concerning beneficial ownership 

The Statute Law (Miscellaneous Amendments) Act, 2019 introduced Section 93A of the Companies Act, 2015 which particularly deals with the register of beneficial ownership of shares. To give effect to these amendments, in 2020 the Attorney General published the Companies (Beneficial Ownership Information) Regulations, 2020.These regulations provided guidance on various aspects, including the qualifications for an individual to be recognized as a beneficial owner, the details to be included in the beneficial ownership register, the procedures for filing with the registrar of companies, and the limitations on disclosing information within the beneficial owners register. 

The New Act aims to enhance the existing legislation by adding four new provisions:  

i. Disclosure of the  nominee status of a Director or Shareholder. 

When an individual holds a position as a Director or Shareholder on behalf of another entity or individual, they are known as a nominee. To enhance transparency, the new Legislation introduces Section 138 A which requires a Company to disclose the particulars of nominees and keep a Register of Nominees.  

ii. Retention period for Beneficial Ownership information. 

Companies are now required to keep records of beneficial owner’s information for at least ten years from the date which the person ceases to be a beneficial owner.  

iii. Penalty for failure to file Beneficial Ownership information.  

The New legislation introduces a penalty for failure to file Beneficial Ownership Information and keeping a Register of Beneficial Owners, The Act provides that the company, and each officer of the company who is in default, commit an offence and on  conviction are each liable to a fine no exceeding five hundred thousand shillings. Further the new legislation provides that after a company or any of its officers is convicted of the offence the company continues to fail to comply with the relevant requirement, the company, and each officer of the company who is in default, commit a further offence on each day on which the failure continues and on conviction are each liable to a fine not exceeding fifty thousand shillings for each such offence. 

iv. Penalty late filing of amendments on Beneficial Ownership information.  

Companies, other than a public listed companied, shall lodge with the Registrar a copy of any amendment to its Register of beneficial owners within fourteen days after making the amendment. For Public Companies, they ought to file the amendments within thirty days. Late filing of updates on Beneficial Ownership Information attracts a penalty two thousand shillings. If the company continues to fail to comply with the requirements, the company, and each officer of the company in default, is liable to pay to the Registrar a further administrative penalty of one hundred shillings for each day of default. 

2. Appointment of a Company Secretary  

Public Companies or Private Companies with a paid-up capital of less than five million shillings are mandatorily required to appoint a company secretary.  The New Legislation introduces Section 243A.  which give  private companies with a paid-up capital of less than five million shillings or a company limited by guarantee the option to elect to  appoint a company secretary. Despite this being an elective option, a private company or company limited by guarantee not having a company secretary or a resident director shall be required to  appoint a contact person who shall be a natural person with a permanent residence in Kenya.  

3. Strike-Off for failure to file Annual Returns for 5 years or more 

The Registrar has been granted the power to strike-off company on the reasonable belief that a company is not carrying on business. Part of the grounds upon which the Registrar may this reasonable belief is that the company has failed to file annual returns or financial statements for a period of five years or more.  

Another ground is  where a company has failed to comply with the requirement to lodge a copy of the register of beneficial ownership.  

4. Records to be held at the Registered Office  

The Act introduces a requirement to keep additional documents at the registered office of a Company. These include documents evidencing registration of the Company.  

5. Retention of Company Documents post-dissolution  

The New Act introduces Section 904A which places a duty on the officers, administrator or liquidator to maintain all the company records for at least seven years from the date of the strike off.  

B. Changes affecting the Limited Liability Partnerships Act, 2011

1. Filing of Annual Returns 

Section 29 of the Limited Liability Partnerships Act, 2011 required Limited Liability Partnerships (LLP’s) to lodge annual declaration of solvency or insolvency with Registrar. However, the New Act has deleted these provisions and substituted the declaration with annual returns.  

The New Act requires LLP’s to file annual returns within thirty days of the anniversary of its registration under the Act or any other period as the Registrar may upon application allow.  

Additionally, in the annual returns LLP’s are  required to disclose the  following information: address of the LLP; the LLP’s principal business activities; declaration of solvency/insolvency; and particulars of the managers, partners and persons appointed as authorized persons. 

The New Act introduces an administrative penalty of Kshs. 2,000 if a limited liability partnership fails to comply with these requirements.   

2. Clauses concerning beneficial ownership 

Whereas the Statute Law (Miscellaneous Amendments) Act, 2019 and the Companies (Beneficial Ownership Information) Regulations, 2020 addressed beneficial ownership, their scope of application was limited to Companies. The New Act seeks to address beneficial ownership in Limited Liability Partnerships.  The Act includes the definition of a Beneficial owner giving it the same meaning assigned to it under the Companies Act, 2015.  

The New Act introduces Section 31 B which requires LLP’s to keep a Register of Beneficial Owners and enter in the Register the  information relating to its beneficial owners. Section 4 of the Limited Liability Partnership Beneficial Ownership Regulations, 2023 provides a description of such information and this includes:  full name; birth certificate number, national identity card number or passport number; personal identification number; nationality; date of birth; postal address; residential address; telephone number; email address; occupation or profession; and the nature of control or influence among other requirements.  

These provisions also apply to Foreign Limited Liability Partnerships. The  Act imposes a penalty for non-compliance stating that a limited liability partnership that fails to comply with this section commits an offence and shall, on conviction, be liable to a fine not exceeding five hundred thousand shillings and, in the case of a continuing offence, to a further fine not exceeding fifty thousand shillings for each day that the offence continues. 

3. Registration procedure for Foreign LLP’s  

The Limited Liability Partnerships Act, 2011 focused solely on the establishment of domestic partnerships. In contrast, the new legislation has expanded its scope by incorporating provisions that facilitate the registration of foreign liability partnerships. A critical aspect of this process is the requirement to register a local representative. Section 34C makes it mandatory for a Foreign LLP to register a local representative who ought to be a permanent resident of Kenya or a Kenyan Citizen who ordinarily resides in Kenya.  

4. Registers and Documents to be kept at the Registered Office 

The New Act provides for the insertion of Section 31 A in the Limited Liability Partnerships Act, 2011 that stipulate a list of records that ought to be kept at the LLP’s registered office. These include: the Notice of registration; Register of Partners, Managers and Legal Representatives with their particulars; copy of the most recent Annual Declaration of Solvency, the Partnership Agreement among others. 

These documents are to be kept for a minimum of Seven (7) Years and are to be available for inspection during ordinary business hours at the request of a Partner.  Non-compliance constitutes an offence and shall, on conviction, the LLP shall be liable to a fine not exceeding five hundred thousand shillings and, in the case of a continuing offence, to a further fine not exceeding fifty thousand shillings for each day that the offence continues.  

5. Disclosure of Nominee Arrangements  

A New provision (Section 31 C ) has been introduced and it requires every limited liability partnership keeps a register of nominee partners at its Registered Office. Additionally, each LLP that was set up prior to coming into effect of this provision shall lodge with the Registrar, a copy of its register of nominee partners within sixty (60) days of coming into effect of this provision.  

6. Inclusion of Strike-Off Provisions 

The New Act introduces a new section (Part VI A ) with Striking-Off provisions. The provisions related to striking off involve the process or regulations for removing a Limited Liability Partnership (LLP) from the official register. This could be due to various reasons, including closure, insolvency, or other circumstances such as non-compliance that warrant the removal of the entity from the records. These provisions are designed to facilitate the seamless removal of LLPs from the official register, ensuring a smooth exit process.  

Way Forward

A crucial aspect of conducting business is ensuring legal compliance. Organizations must stay abreast of changes in laws and regulations that pertain to their operations, and implement policies and procedures to align with these requirements. Failure to comply with standards can result in legal consequences.  

At Bellmac Consulting LLP we offer a wide range of professional services to include Company Secretarial, Corporate Governance and Compliance, Board Evaluation, Management Consulting, Financial Advisory Services and Human Resource Consultancy to various clients operating in diverse sectors in Kenya and the wider East and Central Africa region. 

We offer proactive approaches to legal compliance. We help organizations prepare critical documents including: 

• Board Charters which serve as a guide for directors, ensuring that they operate within the legal framework and adhere to ethical standards. 
• Director’s service contracts setting out the director’s duties, responsibilities, remuneration, termination conditions, and any other relevant terms of engagement. This  clarifies the expectations and legal obligations of both the Director and the Company. 
• Shareholders’ Agreements which outlines the rights, obligations, and relationships among the shareholders of a company, establishing a framework for governance, compliance and cooperation among the shareholders. 
• Partnership Deeds: which outlines the terms and conditions of the Partners business relationship, thus ensuring collaboration, good governance and adherence to laws and regulations.  

Our team of experts are available to answer any questions and provide guidance as needed to ensure that an entity’s Beneficial Ownership information, Annual Returns, Financial Statements  and Registers are well  kept and filed with the Registrar of Companies.   

The post Highlights on the changes to the Companies Act, 2015 and the Limited Liability Partnerships Act, 2011.   appeared first on Bellmac Consulting LLP.