End Of Proxies In Company Ownership In Kenya

Brief Overview and Impact on Businesses in Kenya

The Statute Law (Miscellaneous Amendment Act) 2019 amended the Companies Act 2015 to require all companies to introduce a register of beneficial owners. To effect the amendment, the Government enacted the Companies (Beneficial Ownership Information) Regulations, 2020 as subsidiary legislation to the Companies Act on 18 February 2020. The Business Registration Service (BRS) issued a public notice notifying all officers of companies and authorized persons that the beneficial ownership E-Register had been operationalized with effect from 13 October 2020.

Every company in Kenya must now lodge a register of beneficial owners with the Registrar of Companies. A beneficial owner is defined in the Regulations as any natural person who ultimately owns or controls a legal person or whose behalf transactions are made. A beneficial owner can also be a person who directly or indirectly holds at least 10% of the issued shares in a company. It could also be a person who possesses the direct or indirect power to appoint or remove a director of the company or indirectly or directly exercises significant influence or control; and directly or indirectly exercises a minimum of 10% of the voting rights in a company. The register of beneficial owners should contain particulars of each beneficial owner, 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 implications of the Regulations on the business environment in Kenya are that Companies in Kenya will now have more significant administrative burdens and costs associated with keeping a register of members and creating and maintaining a record of beneficial owners. The drafting of legal documents relating to ownership, such as shareholder agreements and, in particular, reserved matters, will need to consider concentrated shareholding structures and the definition of control. The operationalization of the E-Register is likely to impact a significant amount of ongoing transactions by tying other services offered on the BRS to beneficial ownership compliance. The positive impact of these regulations is that the established E-Register of beneficial owners will help create transparency in ownership of companies in Kenya hence reducing corruption through proxies, money laundering, and other syndicates committed behind the corporate veil. The regulation is still new; hence more time is needed to assess the implications of the disclosure obligation on companies.

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