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Summary of the Companies Act 2015 (commencement)

SUMMARY OF THE PROVISIONS OF THE COMPANIES ACT, 2015 THAT CAME INTO OPERATION ON 6TH DECEMBER 2015

The Companies Act, 2015 was assented by the President on 11th September 2015 with only Section 2 of the Act coming into operation on the date of gazettement on 15th September 2015. All other parts and sections were to come into operation upon a gazette notice by the Cabinet Secretary responsible for company matters, the Attorney General. In exercising such powers, the Attorney General has opted for a phased/ staggered approach in operationalizing the laws. The first phase of implementation of the laws was published in Gazette Notice 233 of 2015 where the following parts are now operational; Parts 1 to 14, Part 23, Part 31, Part 32, Part 38, Part 40, Part 42 and the First, Second and Sixth Schedules of the Act.

The AG has indicated that the second phase of implementation which includes the following Parts of the Act: Parts 15-22, Part 24-28, Part 30, Part 33-37, Part 39, and Part 41. The commencement date for this phase will be by notice.

The Attorney General has also published the Companies (General) Regulations, 2015 which prescribes additional requirements as required by the Act, the necessary forms and the fees for the services offered by the Companies Registry.

The summary below highlights the parts that are now operational under the Act:-

PART I (Sections 1-4) deals with preliminary matters. In addition to providing for the commencement of the section’s provisions, the Part specifies the objects of the Act and defines various terms used in it, including “subsidiary”, “holding company”, “undertaking”, “parent undertaking”, “subsidiary undertaking”, and “dormant company”.

PART II (Sections 5-19) outlines the types of companies that can be formed and deals with their formation and registration. Companies can either be limited by shares or by guarantee or have unlimited liability. Companies limited by shares can either be public companies (which are generally large corporations) or private companies (which are generally small proprietary companies including sole companies).

The Part also provides for the formation of companies. A company limited by shares is required to have a memorandum of association and articles of association, which together form the company’s constitution. Such a company is also required to have a statement of capital and initial shareholdings. A company limited by guarantee is required to register a statement of guarantee. A company may also be registered as an unlimited company, in which case the liability of its members on liquidation of the company is unlimited.

On registration of the required documents as provided under the Companies (General) Regulations, 2015, the Registrar of Companies is required to issue the company with certificate of incorporation.

Companies registered under the Companies Act (Cap 486) will continue under the Act. When registered, a company will have perpetual succession irrespective of its membership.

PART III (Sections 20-32) this part makes further provision for a company’s constitution (i.e. the memorandum and articles of association). Among other things it provides for application of model Articles as prescribed in the Regulations already published, procedures to enable amendment of the Articles of Association of a company;

Other provisions specify the requirements on the objects of a company and the effect of a constitution of a company. It should be noted that the memorandum of association for the existing companies shall be treated/construed as provisions of the Articles of Association.

PART IV (Sections 33-47) this part deals with the capacity of a company to do certain acts such as powers to enter into binding contracts and powers of directors binding on the company.

Provision is also made for a company to have a common seal(but a company is not obliged to have one) and provides for its use for the authentication of documents. A further provision is made that will now enable a company to have an official seal for use outside Kenya.

The Companies are also required to compulsorily have a registered office and would notify the Registrar of change of the registered office.

PART V (Sections 49 – 68) this part deals with the names of Companies. The provisions in this part restrict the use of names that suggest a connection with the Government, offensive names. The Companies (General) Regulations, 2015 prescribe under Regulations 8 – 12 which such names indicate connection with public authorities, characters now permitted to be used in Company’s name and the circumstances in which a company name will not be registered. A public company name must end with “public limited company’ or plc.

Other provisions in this part allow a company to change its name by a special resolution or by means provided for in the articles of association whereafter a new certificate of incorporation would be issued. The provisions also specify the effect of a change of company’s name and disclosure requirements on its documents and publications.

PART VI – (Sections 69 – 91) this part deals with alteration of company status enabling conversion to another kind of company. In particular:-

  1. a private company will be able to convert itself into a public company;
  2. a public company will be able to be convert itself into a private limited company;
  • a private limited company will be able to convert itself into an unlimited company;
  1. an unlimited company will be able to convert itself into a limited company; and
  2. a public company will be able to be able to convert itself into a company that is both private and unlimited.

Another provision will require the Registrar of Companies not to process an application for the registration of a conversion of a company into another kind of company unless the application complies with prescribed requirements. A further provision will require the Registrar to issue a certificate of incorporation to the company on registration of the conversion.

PART VII (sections 92-113) deals with the membership of a company. In particular, the Part relates to members of companies and, in particular, prescribes how persons become members of a company. Among other things, the Part will require a company to keep a register of members and to keep the register available for inspection at its registered office.

Other provisions will require certain companies to keep an index of its members; and specify the rights of persons to inspect a company’s register of members and require copies. Further provisions will enable the High Court to rectify company’s register of members and prohibit a company from entering notices of trusts on its register of members. The provisions under this Part also prohibit a subsidiary from being a member of its holding company: and prescribes other provisions relating to subsidiaries of a company. A provision of the Part also allows a private company to have only one member.

PART VIII (Sections 114-l2l) provides for the exercise of rights of the members of a company. In particular, the Part specifies the effect of provisions of articles on the enjoyment or exercise of rights of members. Other provisions enable certain persons to have information rights relating to traded companies (i.e. companies whose shares are traded on an authorized stock exchange) and confer other rights to information about companies and enable the rights of members to be exercised by others in certain circumstances.

PART IX (Sections 122-212) this part deals with Company Directors. It provides for the appointment and removal of directors of a company. In particular, the Part will require a company to have directors. Companies are required to have at least one natural person to hold office as a director. Other provisions prescribe the qualifications required for appointment as a director of a company; require a company to keep a register of its directors; and prescribe the particulars of directors that are to be recorded in the register. The minimum age for one to be a director is now eighteen(18) years.

Another provision requires a company to notify appointments of directors and of their addresses to the Registrar of Companies and also when directors cease to hold office as such or any changes relating to them occur. Another provision provides for directors to be removed from office by resolution of the members. Further provisions prescribe directors’ rights and duties of office. These include-.

  1. a director’s right to protest against removal;
  2. the duty of a director to act within power;
  • the duty of a director to promote the success of the company;
  1. the duty of a director to exercise independent judgment;
  2. the duty of a director to exercise reasonable care, skill and diligence;
  3. the duty of a director to avoid conflicts of interest; and
  • the duty of a director not to accept benefits from third parties.

 

A further provision specifies the civil consequences of a breach by a director of these duties. Yet other provisions require a director to declare an interest in a proposed or existing transaction or arrangement and provide that certain transactions involving directors require the approval of the members of the company. These transactions include:-directors’ long-term service contracts; substantial property transactions; loans and quasi-loans to directors and to persons connected with directors; and certain credit transactions. Further provisions deal with payments to directors for loss of office. Such payments will require approval by members of the company.

Further provisions provide for the ratification of acts of directors of a company and confer power to make provision for the employees of a company when it ceases business or its business is transferred. A company will be required to keep minutes of directors’ meetings for at least ten (10) years from the date of the meeting. Those minutes are to be evidence of proceedings at meeting of company until the contrary is proved.

Further provisions on directors are also contained in Part V of the Companies (General) Regulations, 2015

PART X (sections 213-237) specifies the circumstances under which directors of a company can be disqualified from holding office as such. In particular, a court is empowered to disqualify a persons being convicted for certain specified offences; for fraud or breach of duty committed while company in liquidation or under administration; or on being conviction of offence involving failure to lodge returns or other Registrar.

Courts are now required to disqualify unfit directors of insolvent companies from acting as company directors. In certain circumstances a person will now able to enter into a disqualification undertaking instead of being made subject to a disqualification order. Persons are also now liable to disqualification after a company has been investigated under Part XXX of the Act.

It is an offence for a person to act as a company director while they are undischarged bankrupts. A person disqualified will now be personally liable for a company’s debts if the person acts while disqualified.

The Part also requires a register of disqualification orders to be kept and provides for the disqualification of persons who are subject to foreign restrictions. Such persons will also be personally liable for a company’s debts if the person acts as a director while disqualified.

PART XI (sections 239-242) deals with derivative actions. In particular, it provides for proceedings by members of a company in respect of a cause of action vested in the company and will enable them to seek relief on behalf of the company.

PART XII (Sections 243-254) deals with Company Secretaries. Every public company will be required to have a company secretary, but a private company will not be required to have a secretary unless it has a paid up capital of Kshs. 5 million and above.

Other provisions in this part prescribe their qualifications, duties and the records to be kept by companies with respect to their secretaries.

PART XIII (Sections 255-321) deals with resolutions and meetings of members of companies. In particular, the part sets out requirements for passing ordinary resolutions and special resolutions. A provision is also made in relation to private companies for written resolutions. Members have a right to require directors to convene general meetings in some circumstances at the expense of the company.

Further, the provisions prescribe the procedure for the conduct of general meetings of companies.

The Part also applies the earlier provisions of the Part to meetings of holders of classes of shares and sets out additional requirement for general meetings of public companies. Members of a public company will have power to require the circulation of resolutions for an annual general meeting at the expense of the company.

PART XIV (Sections 322 – 403) this part deals with shares of a company and share capital of a company limited by shares. In particular, share capital will now no longer be possible to convert into stock. It also provides description of nature of shares and their transferability; allotment of shares; payment of allotment and registration of shares of a company.

Further provisions impose restrictions on public companies that wish to allot shares for non-cash consideration. Companies that issue shares at a premium are now required to establish a share premium account and provide for the application of share premiums.

PART XXIII (Sections 570 -582) deals with debentures issued by a company. In particular, the part makes provision for perpetual debentures, enforcement of contracts to subscribe for debentures; keeping company’s register of debentures and rights of debenture holders to inspect the register.

PART XXXI (sections 829-876) continues the offices of the Registrar of Companies, Deputy and Assistant Registrar of Companies and specifies the functions and powers of those officers under require the Registrar to have an official seal; provide for its use; provide for the recording in the Register of Companies of documents lodged with the Registrar for registration; empower the Registrar to impose requirements with respect to lodgement of documents; provide for fees to be paid to the Registrar for the registration of documents; require the Registrar to give public notice of the issue of certificates of incorporation; confer a right to obtain a certificate of incorporation in specified circumstances; will require the Registrar to allocate a unique identifying number to each company; provide for the recording of registered numbers of branches of foreign companies.

Normally documents will be required to be lodged in the English language, but in certain circumstances documents may be lodged with the Registrar in a language other than English subject to the lodgement of a version of the document translated into English.

Other provisions make it an offence to lodge false or misleading documents, or to make false or misleading statements to the Registrar; provide for the enforcement of a company’s lodgement obligations; provide for electronic communications and the publishing of notices by alternative means; and empower the Registrar to make “Registrar’s Rules”.

Part XXXII (sections 877-892) deals with charges created by a company; charges existing on property acquired by a company, and charges in a series of debentures. In particular, the Part imposes an additional registration requirement for commission, allowance or discount in relation to debentures will now require a certificate of registration to be endorsed on debentures; provides for charges created in, or over property located outside Kenya; requires the Registrar of Companies to keep a register of charges created by or in relation to companies; prescribes a deadline for lodging a charge with the Registrar for registration(30 days from the creation of the charge); will require the holder of a floating charge to lodge with Registrar notice of appointment and cessation of appointment of an administrator of the company to which the charge relates.

PART XXXVIII (Sections 996-1005) contains provisions that specifically relate to offences and legal proceedings involving companies. The Part includes-. a provision that prescribes and defines the liability of officers of companies who are “in default” under the various provisions that create offences under the Act; a provision applying that provision to apply to bodies other than companies; a provision enabling proceedings to be taken against unincorporated bodies; and a provision providing for legal professional privilege involving company communications.

Other provisions confer powers to require a company to produce documents for inspection if it is suspected of being involved in the commission of an offence and to obtain a warrant for the search of premises of such a company. Another provision creates the offence of fraudulent trading;

Other provisions will empower the High Court to prohibit payment or transfer of money, financial products or other property; and to grant injunctions in specified circumstances.

A further provision empowers a court to grant relief in certain specified circumstances (where, for example, a company or director acted innocently in relation to a particular matter).

PART XL (sections 1010-1016) provides for the service of documents on a company and on directors, secretaries and others and for addresses for the service of documents. In particular, the Part provides for the making of regulations relating to:-sending or supplying documents or information by a company; and sending or supplying documents or information to a company.

Members of companies and others who provided with an electronic version of a document by a company will be entitled to be provided with a hard copy version.

Other provisions of the Part provide for the authentication of documents sent or supplied by a company and determine when documents and information are taken to have been sent or supplied by a company.

Further provisions are made in Companies (General) Regulations 2015 regarding this part.

PART XLII (clauses 1023-1021) contains supplementary provisions. The Part empowers the Cabinet Secretary (in this case the Attorney General) to make regulations (already made) for purposes of the Act; provides for the repeal of the existing Companies Act and for the revocation of subsidiary legislation made under it; provides for the continuity of the law relating to companies; and empowers the Cabinet Secretary to make savings and transitional regulations consequent on the Act;

The First Schedule prescribes the rules that are to apply for the purpose of determining when a director is connected with a body corporate for purposes of Part IX of the Act.

The Second Schedule contains matters for determining whether a person is fit to be a director of a company.

The Sixth Schedule contains savings and transitional provisions consequent on the repeal of the Companies Act (Cap. 486).

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