MGA Hub

1. Introduction

Pursuant to Section 93A of the Companies Act, No. 17 of 2015 (the “Act”) as read together with the Companies (Beneficial Ownership Information) Regulations, 2020 (the “Regulations”), every Company in Kenya is now required to keep a register of its beneficial owners and maintain a copy with the Registrar of Companies.

The particulars required with respect to a beneficial owner are as follows: full names, birth certificate number, national identification or passport number, personal identification number, nationality, date of birth, postal address, business address, residential address, telephone number, email address, occupation or profession, nature of ownership or control, date when one became beneficial owner, date when one ceased to be a beneficial owner and any other relevant detail as the Registrar of Companies may require.

It is expected that the Beneficial Ownership Register will create greater transparency in the ownership of companies and support the Government in the fight against corruption, money laundering and terrorism.

2. Who is a beneficial owner?

For the purpose of the Regulations, a beneficial owner of a company has been defined to mean a natural person who meets any of the following conditions in relation to the company

  1. a)  Holds at least 10% of the issued shares of the company either directly or indirectly. Most companies in Kenya have shareholding structures that meet this threshold meaning that most companies will be required to file under this arm of definition. Indirect shareholding will be in cases where there are proxy and nominee arrangements with respect to the shares held;

  2. b)  Exercises at least 10% of the voting rights in the company. It is usual for voting rights to be attached to the shares held by an individual and this requirement will in most cases mirror (a) above. Again similar to (a) above proxy and nominee arrangements may mean that there are individuals who could have indirect voting rights;

  3. c)  Holds the right either directly or indirectly to appoint or remove a director of the company. Again there could be proxy or nominee arrangements that could result in a direct or indirect right to appoint or remove directors; and

  4. d)  Exercises significant influence or control in the company. This refers to where one has the ability to engage in the company’s decision-making process on financial matters without necessarily having full control over them. Again proxy and nominee arrangements rank high with respect to the issues of influence and control.

3. What are Proxy and Nominee Arrangements

A nominee shareholder is someone who lends his name to another to act as the registered owner of shares in a company when in truth he only holds the shares for that other person’s benefit. This is usually where such an individual wants to avoid publicity with respect to such ownership or where matters of conflict of interest could arise with respect to tenders and businesses undertaken by the company with other entities where such an individual wields control or influence.

 

The regulations seem to allude to the fact that the person appointing a proxy/nominee shareholder qualifies as a beneficial owner. This is construed from a scrutiny of the definition section of the regulation;

"beneficial owner" means the natural person who ultimately owns or controls a legal person or arrangements or the natural person on whose behalf a transaction is conducted, and includes those persons who exercise ultimate effective control over a legal person or arrangement;

"significant influence or control" means participation in the finances and financial policies of a company without necessarily having full control over them; and

"ultimately owns or controls" means a situation which ownership is exercised through a chain of ownership or by means of control other than direct control.

4. Power of a Company under the Regulations

The regulations give the company authority to notify a person whom the company knows or believes to be a beneficial owner requiring them to provide the required particulars to the company and such a person is required to comply within 21 days of receiving the notice.

Failure to comply with the notice within 14 days will result in the company restricting the shares, voting rights and board rights of such a non-compliant beneficial owner with the effect that

no shares may be issued over the interest or in pursuance of an offer made to the interest-holder and no payment such as dividends may be made of sums due from the

company in respect of the restricted interest.

5. Compliance

Each company is required to file the register of beneficial owners with the Registrar of Companies within 30 days of its preparation with the initial compliance deadline being 31st January, 2021.

There is also an on-going obligation that any changes in the details to this register must be lodged with the Registrar of Companies within 14 days of such changes.

6. What are the consequences for non-compliance?

Failure to comply with the disclosure and filing requirements is an offence under the Companies Act which, on conviction, attracts a penalty of up to KES 500,000 for the Company and on each officer who is liable and further penalties of Kes. 50,000/= each per day of continuing non-compliance.

7. Register of Beneficial Owners Not Public Information

The regulations provide that a company should not disclose beneficial ownership details to the public unless with the consent of the beneficial owner or in instances where it is

8. Conclusion

It is not clear whether a company can currently make changes to its register of members to remove any existing or proxy any transfer of the beneficial owner’s interests would be

void, no rights would be exercisable in respect of the restricted interest, arrangements with a view of avoiding disclosure of related beneficial ownership by the deadline of 31st January, 2021 but it is expected that some companies may consider registering such changes before then. shared with such owners for purposes of compliance with the regulations, in compliance with a court order or upon request by a competent authority. It is necessary to review the existing documentation between the company and its shareholders including any unwritten arrangements with a view of complying with the regulations.

For any enquiries or support with the matters contained in this write-up please contact us on 0722108111 or commercial@mga-

legal.com