Trust a Secret – No More

Attorney at law

Trust a Secret – No More

The Companies (Amendment) Act 2017 came into force on 16 August 2017 and introduced significant changes to the Companies Act, 2015. One of the new changes introduced by the Amendment Act is the requirement that every company must keep a register of its members which shall include the name and address of the beneficial owners of the company (if any). A beneficial owner is defined to mean 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.

The previous requirement that every company must file its register of members with the Registrar of Companies within 30 days after completing its preparation has also been amended so that the company must include in it information relating to the beneficial owners (if any). If a company does not comply with the above requirements, the company and each officer of the company that is in defaults, commits
an offence and on conviction is liable to a fine not exceeding KES 500,000 and a further KES 50,000 for each date that the offence continues.

Whereas the requirement to disclose beneficial ownership could be seen as introducing transparency in doing business in Kenya it presents an administrative nightmare particularly for public companies listed on the Nairobi Securities Exchange. Many foreign investors acquire shares on the NSE through global custodians and these blocks of shares are held in trust through Kenyan sub-custodians. A cursory inspection of the annual reports and financial statements of listed companies will invariably have “nominee non-resident” accounts in their top ten shareholders list. The amendments to the Companies Act mean that the beneficial ownership in each such account will need to be disclosed in the register of members irrespective of how regularly the shares are traded on the exchange.

The disclosure of beneficial ownership will also likely make it more difficult to structure shareholding arrangements or transactions where the trust relationship for some commercial reason should be secret. This may also necessitate the revision of existing trust arrangements in sectors that have limits on individual shareholding or where there are local shareholder requirements.

In this regard, a prudent company may want to revise its internal procedures to require shareholders to disclose any beneficial ownership. The implementation and enforcement of this new requirement will unlikely be immediate and there may be some room for companies to ensure compliance.

For any further information regarding the Companies Act 2015, please write to:

Sammy Ndolo
Managing Partner
Kieti Advocates LLP

This legal alert is issued to inform Kieti clients and other interested parties about legal developments that may affect or otherwise be of interest to them. The commentary above does not constitute legal or other advice and should not be regarded as a substitute for specific advice in individual cases. Kieti Advocates LLP is a limited liability partnership registered in Kenya under no. LLP-4EL1A8.