Background.
The Companies Act of 2015, the primary legal framework governing the operation of companies in Kenya was amended through the Statute Law (Miscellaneous Amendments) Act, 2019 which introduced Section 93A to the Act. The amendment enjoined companies incorporated or registered in Kenya to keep a register of beneficial owners containing relevant information relating to such owners.
Through a legal notice dated 18th February 2020, the Attorney General gazetted The Companies (Beneficial Ownership Information) Regulations, 2020 (the ‘Regulations’), to give effect to Section 93A of the Companies Act, 2015. The Registrar of Companies subsequently published a notice declaring that the beneficial ownership of companies e-register would be operational commencing 13th October 2020
Who is a Beneficial Owner?
The Companies Act, 2015 defines a beneficial owner as “the natural person who ultimately owns or controls a legal person or arrangements or a natural person on whose behalf transactions are conducted, and include persons who exercise ultimate effective control over a legal person or arrangement.”
An “arrangement” is defined as “an artificial entity, without legal personality, associating one or more natural or legal persons together in an ownership or control relationship, but without implying that the parties to this arrangement have any other form of collective legal identity” An example of an arrangement would be a trust or even a proxy agreement.
Under the Regulations, a beneficial owner is a natural person who directly or indirectly:
a) holds at least ten percent (10%) of the issued shares of the company;
b) exercises at least ten percent (10%) of the voting rights in the company;
c) possesses the right to appoint or remove a director of a company; or
d) exercises significant influence or control over a company.
Significant influence or control under (d) above is defined to mean “the ability to participate in decision making when it comes to matters relating to finances and financial policies without necessarily having full control over them.”
Obligations of a Company.
It is now a requirement for every company to maintain and keep two (2) separate registers; a register of members and a register of beneficial owners. The register of beneficial owners must be lodged with the Registrar of Companies upon conclusion.
The register of beneficial owners should contain particulars of each beneficial owner which includes the following (amongst others): (i) full name; (ii) birth certificate number, national identity card number or passport number; (iii) nationality; (iv) date of birth; (v) postal, business and residential address, telephone number and email address; (vi) occupation or profession; (vii) personal identification number; and (viii) the nature of ownership or control, including the date when a natural person became a beneficial owner, the date on which a person ceased to be a beneficial owner and any other relevant details the Registrar may require.
The Regulations empower companies to issue notices to any person a company reasonably believes is a beneficial owner. A person who receives a notice must provide their details within 21 days from the date of the notice. Any individual that fails to comply with the notice will be served a warning notice and the Company is empowered to restrict the interest of the person in violation of the warning notice.
Maintenance of the beneficial ownership register will be a continuing obligation and companies will be required lodge with the Registrar any amendments made to their register of beneficial owners within fourteen (14) days after making an amendment.
The Regulations set out significant consequences for non-compliance. Effective the 13th October 2020, the Registrar of Companies restricted transactions over the e-citizen portal. A company that is yet to comply with the requirement will not be able to effect changes to its shareholding structure, register transfer of shares, file annual returns, appoint or remove principal officers and/or make alterations to its share capital.
The inability to effect the above changes may constitute a further contravention of the Act.
Additionally, failure to comply with the requirements of the Regulations constitutes an offence, and upon conviction, the company and its officers would each be liable to a fine of up to Kshs. 500,000.00 for first offense and an additional fine of Kshs. 50,000.00 each day for continuing non-compliance.
Conclusions.
Beneficial Ownership of Companies in Kenya is crucial. We would recommend that all company officers familiarize themselves with the definition of a beneficial owner in the Regulations and identify the different levels of ownership in their company. Notices should be issued to any person a company reasonably believes is a beneficial owner. The details of all beneficial owners should then be entered into a register of beneficial owners and submitted to the Registrar via the e-Register.
Companies must also put in place mechanisms to continuously update the register of beneficial owners.
