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

Introduction 

The Registrar of Companies operationalized the Beneficial Ownership (BO) E-register on 13^th 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 Owner’s 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:

• any transfer of the beneficial owner’s interest is void;

• no rights are exercisable in respect to the beneficial owner’s interest;

• no shares may be issued in right of the beneficial owner’s interest; and

• no payment may be made of sums due from the company in respect to the beneficial owner’s interest.

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 owner’s 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.