Highlights on the changes to the Companies Act, 2015 and the Limited Liability Partnerships Act, 2011.
Kenya has initiated significant transition to modernize its company and partnership laws through the enactment of robust legislation to ensure effective regulation. This article aims to outline key changes and associated with the Companies Act, 2015 and the Limited Liability Partnerships Act, 2011.
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.