The Companies Act, 2015

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The Companies Act 2015 (the Act) is amongst a suite of new laws intended to streamline business in Kenya, by making it easier for entities to establish a presence and operate. Although quite voluminous, the Act takes into consideration, developments in technology and procedure, to boost the ease of doing business. In addition, the Act codifies and gives life to the now generally accepted principles of corporate governance.

Below are some of the more salient features of the Act:-

  • The introduction of sole membership of private companies; entrepreneurs will no longer be required to incorporate a company with at least two members(as required under the previous Companies Act (Cap 486). This takes into consideration the Government’s intention to increase and facilitate entrepreneurial activity in Kenya
  • Several provisions that remove previous procedural technicalities for compliance have also been codified. These include:-
  1. No obligation for a private company to have a company secretary, where it its paid-up capital, does not exceed Kshs. 5 million
  2. Private companies are allowed to have only one director, while public companies must have at least two
  3. The minimum age of a director is now 18 years, down from the previous 21 years, with no prescribed maximum age
  4. A company’s objects are now not deemed to restrict its capacity; a company may transact only subject to its own limitations
  5. The members of a private company may pass written resolutions circulated in hard copy or electronic form
  • A company may notify shareholders of notices and announcements through its website
  • Sector-Specific model articles of association shall be prescribed
  • The Act codifies directors’ fiduciary duties, as stipulated under common law. These include: duty to exercise reasonable care, skill and diligence, duty to act within powers and duty to avoid conflicts of interest In respect of accountability and transparency, the following provisions have been introduced:-
  1. Private companies must file financial statements within 9 months of the accounting period with the Registrar of Companies (RoC)
  2. Resolutions, written memorandum and agreements affecting the company’s constitution are to be filed at the Companies Registry within 14 days of their passing
  • Directors’ fixed term service contracts in excess of two(2) years will require shareholders’ approval
  • The requirements for valid execution of a document by a company have been changed to signing by 1 director in the presence of an attesting witness
  • The RoC is to be informed of changes in a company’s directorship or directors’ addresses within 14 days of effecting the change
  • Transfer by the company of a substantial non-cash asset to director shall only be by resolution. A non-cash asset is considered substantial where its value exceeds 10% of the company’s assets and is more than Kshs 5 million, or one that exceeds Kshs 10 million
  • An application may be made to the AG or the Official Receiver for a disqualification order against a director or company secretary, where he/she is unfit to hold office, or where the company becomes insolvent. The duration of such an order is between 2 to 15 years
  • Takeovers and Mergers will now be governed by the Act(once it comes into force), as opposed to the previous position, where takeovers were governed by the Capital Markets Act (Cap.485A) and the regulations made thereunder
  • The introduction of comprehensive Financial Reporting requirements in line with International Accounting Best Practice(developed after Enron and Parmalat) which includes amongst others setting out the functions, remuneration terms and extent of liability of Auditors (exemption of liability is proscribed)
  • Golden parachutes which are common place during the exit and/or ouster from office of any director, are subject to approval by the shareholders.
  • Winding Up (which was previously governed and available under the old Companies Act 1948) is now repealed as a whole and replaced with legal concepts such as administration, liquidation and moratorium which are governed by the Insolvency Act 2015
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