October 23, 2020

Legal Update: Mandatory Disclosure of Beneficial Ownership Information By All Companies

Filed under: Insight — job @ 9:47 am

Introduction 

The Registrar of Companies operationalized the Beneficial Ownership (BO) E-register on 13th October 2020. The effect of this is that all registered companies are now expected to prepare a form/register setting out all the information relating to their beneficial ownership and lodge the same with the Registrar within thirty (30) days of its preparation.

Prior to the enactment of the Companies Act, 2015, companies did not have any duty whatsoever to disclose information regarding their beneficial ownership. However, pursuant to the Companies (Amendment) Act, 2017 and subsequently the Statute Law (Miscellaneous Amendments) Act No. 12 of 2019 which introduced Section 93A, all companies incorporated or registered in Kenya are mandatorily required keep a register of beneficial owners with the relevant information relating to the said beneficial owners as prescribed by the Companies (Beneficial Ownership Regulations) 2020 (hereinafter referred to as the ‘BO Regulations’).

Who is a beneficial owner?

The BO Regulations describe a beneficial owner as the natural owner who ultimately owns or controls a legal person or arrangement. 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.

Pursuant to the BO Regulations, a person qualifies as a beneficial owner if the person:

  1. holds at least ten percent (10%) of the issued shares in a company either directly or indirectly;
  2. exercises at least ten percent (10%) of the voting rights in a company either directly or indirectly;
  3. holds a right, directly or indirectly, to appoint or remove a director of the company; and
  4. exercises significant influence or control; directly or indirectly, over the company. In this case significant influence means participation in the finances and financial policies of the company without necessarily having full control over them.

Steps of Filing Beneficial Ownership Information of a Company with the Registrar of Companies

  1. The company should take reasonable steps to identify any person it knows or has reason to know is a beneficial owner of the company.
  2. The company should give notice to the person it has identified as being a beneficial owner of the company requiring the person to provide the following information within twenty-one (21 days) from the date of the notice;
    • copy of his/her National Identification Cards, Passports or Birth Certificate;
    • copy of his/her PIN Certificate;
    • his/her telephone number, email address and occupation;
    • the nature of ownership or control the beneficial owner has in the company;
    • the name of shareholder (if any) holding shares on behalf of the beneficial owner; and
    • the name of the director appointed by the beneficial owner.
  3. The company should prepare Form BOF1 which contains the information set out in (2) above and lodge the same with the Registrar of Companies within thirty (30) days of preparing the said Form.

What happens in the event a Company believes it has beneficial owners but cannot identify or trace them?

The Company should simply notify the Registrar of Companies of the challenge to identify or trace its beneficial owners so that the Registrar can note the same in the register of Beneficial Owners.

What happens in the event a Beneficial Owner fails to provide the Company with Beneficial Owners details to enable to the Company Prepare and Lodge Form BOF1?

 The company should issue a warning notice stating that it is proposing to restrict the relevant interest of the beneficial owner.

The effect of the said restriction is:

Where the Company has issued a warning and imposed a restriction it shall note this in its register and lodge it with the Registrar.

Are there Limitation on the use and disclosure of beneficial owners information by the Company and Registrar?

Yes!

The use and disclosure of the beneficial ownership information is limited by law. The BO Regulations prescribe that as a general rule, beneficial ownership information shall not be made available to the public.

The rationale for this is to safeguard the beneficial owners’ confidentiality and to preserve their right to privacy.

The implication of this however is that a company’s beneficial ownership information shall not be readily available to any member of the public by way of conducting a company search. The Registrar would only issue such information to a competent authority upon written request to the Registrar of Companies.

A Company on its part, is only allowed to use or disclose information about the beneficial owner for purposes of communicating with the beneficial owner concerned, or in order to comply with either a court order or the Company (Beneficiary Ownership Regulations) 2020.

What are the timelines for the preparation and lodging of the Beneficial Ownership Register?

The Regulations do not seem to impose any specific deadlines as to the timelines within which a company is required to prepare its beneficial ownership register.

However, a company should prepare such register as soon as possible as it is obliged to keep a register of beneficial owners in its offices failure to which the company may be liable for committing an offence which attracts a maximum fine of Kenya Shillings Five Hundred Thousand (Kshs.500,000/=).

Once the register is prepared, the company must lodge the register with the Registrar of Companies within thirty (30) days.

What is the Rationale of Disclosing the Beneficial Owners of a Company?

The rationale for disclosure of beneficial ownership information is in the interest of creating an accurate public disclosure regime that provides transparency in the beneficial ownership and control structures of companies. This aids in not only promoting investor confidence and good corporate governance practices but also in uncovering tax evasion schemes, money laundering practices, corruption schemes, terrorist activities and other illegal activity involving either one or more companies.

Are there internal arrangements that stand to be affected by the BO Regulations?

Yes.

Some of the arrangements that are likely to be affected by this new requirement include nominee shareholders who will now be required to disclose the real details of their principal who is the true beneficial owner.

Companies that use chains of corporate vehicles will also now be required to disclose their real owners.

Holders of multiple voting rights shares exercising at least 10% of the voting rights will now be disclosed.

Conclusion

In view of the fact that the Beneficial Ownership E-register has been operationalized, companies need to comply with the BO Regulations by lodging their beneficial ownership information with the registrar the earliest possible to avoid the hefty penalties that come with non-compliance.

For more specific and comprehensive legal advice on this matter kindly contact our offices at the earliest opportunity.

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July 17, 2020

d) Equal distribution rights between parents of the deceased

Filed under: Hidden Insight — job @ 10:07 am

The Bill also sets out to ensure equal rights between parents of the deceased. The current position is that the father has first priority unless he is not alive then interests will be vested to the mother. The new regime will see to it that both parents shall have equal priority rights in the distribution of the estate.

Traditionally, mothers had been side-lined owing to traditional patriarchal stereotypes that enabled men to be prioritized above women. This shift in the law will ensure that mothers of the deceased who die intestate are entitled to receive an equal share to their husbands in the event the deceased did not leave behind a wife or children.

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c) Effects of Re-marriage to succession of the Deceased’s Estate

Filed under: Hidden Insight — job @ 10:04 am

Section 35 of the LSA currently provides that a widow’s right to inheritance shall determine upon re-marrying.  The LSA Bill seeks to eliminate this gender bias by replacing the word ‘widow’ with ‘spouse’. Specifically, the Bill provides that a spouse loses their lifelong interest in the deceased’s estate when they re-marry. This effectively applies to both men and women thus eliminating the differential treatment of men and women on the issue of termination of the right to inheritance upon marriage.

Some scholars have argued that the termination of the right to inheritance upon re-marriage infringes Right to Marriage as provided under Article 45 of the Constitution of Kenya. This is because that particular provision may affect one’s choice in deciding whether or not to re-marry since that re-marriage comes at the risk of losing the right to inheritance.

Other scholars have argued that the proposal to strip a spouse their interests if they remarry is to protect the estate from a reckless widow/widower where minors and other dependents are involved.

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b) Communal Land Protection

Filed under: Hidden Insight — job @ 10:00 am

Section 32 of the LSA provides that land situate in West Pokot, Turkana, Marsabit, Mandera, Wajir, Garissa, Tana River, Narok, Samburu, Isiolo, Lamu and Kajiado shall not be divided subject to the law of succession Act.

This section in the LSA was included so as to protect communal land rights of communities situated in these areas from any form of privatization including through succession claims by individuals. By including community land recognized under Article 63 of the Constitution of Kenya into the law on succession, the Bill is taking proactive steps towards eliminating historical injustices and disputes that arise due to private ownership of what initially was community land.

However, we believe that further steps such as registration of community land at the Lands Registry should be undertaken to ensure better protection of community land as provided for under Land Registration Act 2012.

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a) Dependency and Gender Equality

Filed under: Hidden Insight — job @ 9:55 am

The proposed amendments to section 29 of the LSA amplify the principle of gender equality, noting that the current Act contains elements of discriminatory treatment. For instance under the LSA, the husband who claims an interest in the wife’s estate is required to prove dependency yet the same is not required from the wife.

Section 29 (c) of the LSA provides that “where the deceased was a woman, her husband if he was being maintained by her immediately prior to the date of her death.  This means that for widowers to be entitled to their wives estate, they have to first prove to the courts that they were being maintained by the deceased wife immediately prior her death.

In contrast, the category of wives and former wives bear no such burden with the courts automatically acknowledging their claims to their husbands’ estate. Currently, the only qualification for a former wife is to prove that she did not receive any of the deceased’s assets during the dissolution of the marriage. However, this will change when the President assents to the Bill because the Bill seeks to eliminate former wife’s automatic rights in the former deceased’s estate by providing that she first needs to satisfy the courts that she was being maintained by the deceased prior to his death.

This proposed amendment to section 29 of the LSA will eliminate the existing gender bias against widows that asserts men as the providers of households thereby making it difficult for widowers to access their wives estates in succession matters.

The interesting bit however is that though the proposed amendments seek to realize gender equality, section 31 of the LSA also acknowledges that the application of customary law in Kenya has not been deleted. This is still a major setback because most customary norms favour men as opposed to women especially with regard to whether married women can inherit or not.

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October 7, 2019

Faith Wangui

Filed under: Associate — job @ 11:15 am

Ms. Wangui graduated from the University of Nairobi in the year 2016 and was admitted as an Advocate of the High Court of Kenya in the year 2019.

Ms. Wangui joined the firm as a Legal Assistant before subsequently being retained as an Associate. She has experience in commercial litigation, particularly in insurance, banking, and employment matters, and has represented the firm’s clients in commercial disputes before several courts and tribunals. In addition, she is an advocate for alternative dispute resolution mechanisms and is honing her skills in non-litigious dispute resolution mechanisms; including conciliation, mediation and arbitration.

Currently, Ms. Wangui is attached to the firm’s Dispute Resolution Department.

Contacts:
Tel: 0207803920
Email: Faith.Wangui@krk.co.ke

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March 13, 2019

Antony Mbugua

Filed under: Associate — job @ 6:37 pm

 

Mr. Mbugua graduated from the University of Nairobi in the year 2014 and was thereafter admitted as an Advocate of the High Court of Kenya in the year 2016.

Mr. Mbugua has extensive experience in commercial litigation, particularly in insurance, banking, and employment matters. He has represented numerous clients not only in the Magistrate’s Court but also in Specialized Tribunals, the High Court, the Court of Appeal, Arbitration Panels, as well as in mediation. In addition, he has moderate experience in tax matters, an area in which he has a keen interest. Currently, Mr. Mbugua is attached to the firm’s Dispute Resolution Department.

Contacts:
Tel: 0207803920
Email: Antony.Mbugua@krk.co.ke

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Gideon Ochieng

Filed under: Associate — job @ 6:35 pm

Mr. Ochieng graduated from the University of Nairobi in the year 2011 and was thereafter admitted as an Advocate of the High Court of Kenya in the year 2014. Mr. Akatch is also a Commissioner for Oaths.

Mr. Ochieng has extensive experience in conveyancing and is adept at perfection of bank securities. He is also an expert in transaction advisory and has successfully overseen several mergers and acquisitions from inception to conclusion. Currently, Mr. Ochieng is attached to the firm’s Commercial Services Department.

Contacts:
Tel: 0207803920
Email: Gideon.Ochieng@krk.co.ke

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Joyce Muriithi

Filed under: Associate — job @ 6:30 pm

Ms. Muriithi graduated from Moi University in the year 2011 and was admitted as an Advocate of the High Court of Kenya in the year 2014. Ms. Muriithi is also a Commissioner for Oaths.

Ms. Muriithi has extensive experience in corporate and commercial law. She has advised on a broad range of commercial issues including in all aspects of incorporation, corporate restructurings, mergers and acquisitions, property transfers and perfection of bank securities. She is also well versed in immigration law as well as probate and succession law. Currently, Ms. Muriithi is attached to the firm’s Commercial Services Department.

Contacts:
Tel: 0207803920
Email: Joyce.Muriithi@krk.co.ke

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Stephen Kamau

Filed under: Partner — job @ 6:28 pm

Mr. Kamau graduated from the University of Nairobi in the year 2003 and was thereafter admitted as an Advocate of the High Court of Kenya in the year 2005. Mr. Kamau is also a Commissioner for Oaths and a practising Notary Public.

Mr. Kamau possesses extensive experience in all aspects of commercial and corporate transactions involving drafting and advising in complex commercial transactions for leading companies and in Real Estate. His expertise in Real Estate practise is almost unmatched elsewhere.

Prior to co-founding the firm, Mr. Kamau worked at Mohamed Madhani & Company Advocates for more than 15 years and was the Partner in charge of its Commercial and Conveyancing Department. Presently, he serves as the firm’s Head of Commercial Services.

Contacts:
Tel: 0207803924
Email: Stephen.Kamau@krk.co.ke

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