A 2019 amendment to the Kenyan Companies Act, 2015 introduced a requirement for every company to keep a register of its beneficial owners and submit a copy of this register to the Registrar of Companies (the “Registrar”) within 30 days of preparation.
In order to put the above statutory requirements into action, the Attorney-General published the Companies (Beneficial Ownership Information) Regulations, 2020 (the “Regulations”) with effect from 28 February 2020. Under the Regulations, a company’s beneficial owner is any natural person who:
- either directly or indirectly holds at least 10% of the issued shares of the company;
- exercises at least 10% of the voting rights in the company;
- holds a right to appoint or remove a director of the company; or
- exercises “significant influence or control” over the company. Significant influence or control has been defined to mean participation in the finances and financial policies of a company without necessarily having full control over them.
These Regulations apply in any situation where ownership or control in a company structure is exercised through a direct or indirect chain of ownership or control. Companies will now need to keep records of all their beneficial owners through the chain of ownership or control in order to identify the natural person(s) who have the ultimate beneficial ownership or control. A company is required to take reasonable steps to identify its beneficial owners and to enter the required particulars, which include personal information, in the register.
In addition, except in the case of listed companies, any subsequent changes in beneficial ownership information should be notified to the Registrar within 14 days by way of filing an amended register of beneficial owners. Failure to comply with these requirements is deemed an offense and the company and every officer who is in default will each be liable on conviction to fines of up to KES500 000 for a first offense and an additional fine of KES50 000 each per day for continuing non-compliance.
The Regulations also give a company the authority to notify a person whom the company knows or reasonably believes to be a beneficial owner requiring him or her to provide the required particulars to be entered in the register of members. A person to whom such a notice is issued is required to comply within 21 days of receiving the notice.
Failure to comply with such a request within 14 days will result in the company restricting the shares, voting rights and board rights of such a non-complaint beneficial owner. The effect of such a restriction is that:
- any transfer of the restricted interest would be void;
- no rights would be exercisable in respect of the restricted interest;
- no shares may be issued over the interest; and
- no payments such as dividends may be made from the company in respect of the restricted interest.
The restriction will be noted in the register of beneficial owners and filed with the Registrar within 14 days.
In keeping with the recently enacted Data Protection Act, 2019, the Regulations provide that a company should not use or disclose any information about its beneficial owners except for purposes of communicating with the concerned beneficial owner, in compliance with the Regulations or a court order. An exemption is however made for competent authorities that may request the Registrar, in writing, to provide information relating to a beneficial owner of a company. The Regulations also provide that beneficial ownership information should also not be made available to the public but a beneficial owner may consent in writing to his or her information being disclosed.
The upshot of the above is that companies are now required to conduct investigations into their beneficial owners. In doing so, it may be necessary to review the articles of the company, current register of members, other written agreements (such as shareholders’ agreements, trust deeds and any unwritten arrangements between registered shareholders), holders of voting rights and board rights, persons who exercise significant influence or control over the company and other third parties.
The new beneficial ownership requirements appear to have been driven by anti-corruption and anti-money laundering efforts given that a company’s finances cannot be reasonably traced and verified without identifying the beneficial owner. It will now be less difficult for authorities to identify the actual owners of companies, including those with far reaching and complex ownership structures. It is anticipated that compliance may prove challenging for such companies particularly where the top holding company may be a listed company or a private equity fund whose funds are drawn from a variety of institutions and individuals.