IMPORTANT DEVELOPMENTS REGARDING DISCLOSURE OF THE BENEFICIAL OWNERSHIP OF COMPANIES IN KENYA
The Statute Law (Miscellaneous Amendment Act) 2019 (SMAA) amended the Companies Act (No. 17 of 2015), Laws of Kenya (the Companies Act) to require all companies to introduce a register of beneficial owners. In order to give effect to the amendment the Government enacted the Companies (Beneficial Ownership Information) Regulations, 2020 (the Regulations) as subsidiary legislation to the Companies Act on 18 February 2020. The Business Registration Service (BRS) has since published a public notice notifying all officers of companies and authorised persons that the beneficial ownership E-Register (E-Register) has been operationalised with effect from 13 October 2020 (the Public Notice).
Changes introduced by the SMAA and the Regulations
Every company in Kenya must now lodge a register of beneficial owners with the Registrar of Companies (the Registrar). A beneficial owner is defined in the Regulations as any natural person who ultimately owns or controls a legal person or on whose behalf transactions are made. A beneficial owner is someone who: (i) directly or indirectly holds at least 10% of the issued shares in a company; (ii) possesses the direct or indirect power to appoint or remove a director of the company; (iii) indirectly or directly exercises significant influence or control; and (iv) 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 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 enable companies to issue notices to any person a company reasonably believes is a beneficial owner. Anyone who receives a notice must provide their details within twenty one (21) days from the date of the notice. Any individual that fails to comply with the notice will be served a warning notice. A company can now restrict the interest of an individual that fails to comply within fourteen (14) days of a warning notice being issued. In terms of continual reporting obligations, all companies (other than public listed companies) are required to lodge with the Registrar any amendments made to their register of beneficial owners within fourteen (14) days after making an amendment. Failure to comply is deemed an offence and the company will be liable to a fine of up to KES 500,000 for a first offence and an additional fine of KES 50,000 per day for continuing non-compliance.
Operationalisation of the E-Register
By virtue of the Public Notice, the BRS E-Register has now gone live. As a result, all companies are required to submit a copy of their beneficial ownership register within thirty (30) days of its preparation onto the E-Register. This has had an immediate impact as other activities offered by the BRS such as incorporation applications, linking of businesses and routine fillings are at present affected on account of beneficial ownership information.
Companies in Kenya will now have greater administrative burdens and costs associated with keeping a register of members as well as creating and maintaining a register of beneficial owners. The drafting of legal documents relating to ownership, such as shareholder agreements and in particular, reserved matters, will need to take into account concentrated shareholding structures and the definition of control.
The operationalisation 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. This situation has been escalated to the Registrar and is currently under review.
The BRS (in a questionnaire sent to all practitioners in September 2020) has proposed to issue guidelines to aid company officers to identify beneficial owners, prepare beneficial ownership registers and deal with non-compliance. However, until the guidance is issued there is a risk of inconsistent interpretation of the Regulations and the filling of incorrect information onto the E-Register.
Following the publication of the Public Notice, we would recommend that all company officers familiarise 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 onto the E-Register. Going forward all companies should also ensure that they introduce a system to keep track of any changes in the information of beneficial owners.
The Regulations and the E-Register will help to create greater transparency in the ownership of companies in Kenya. Notwithstanding, more time is needed to assess the implications of the disclosure obligations on companies in Kenya and the overall effect on anti-money laundering efforts.