Operationalisation of disclosure of beneficial ownership information in Kenyan companies | JP Advocates LLP
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REGISTER OF BENEFICIAL OWNERSHIP: OPERATIONALISATION OF DISCLOSURE OF BENEFICIAL OWNERSHIP INFORMATION IN KENYAN COMPANIES
By Johnson Kariuki

16/10/2020

The Registrar of Companies (the “Registrar”) has announced the operationalization of the Beneficial Ownership E Register with effect from October 13th, 2020.
This is pursuant to Section 94A of the Companies Act (Act No. 17 of 2015, Laws of Kenya) which was enacted through the Statute Law (Miscellaneous Amendments) Act (Act No. 12 of 2019, Laws of Kenya). The amendment introduced a mandatory requirement that each company should maintain a register of its beneficial owners (the “Register”). On February 18th, 2020, the Attorney General published the Companies (Beneficial Ownership Information) Regulations, 2020 detailing the compliance mechanism.
This amendment lifts the lid off the confidentiality that comes with the use of nominee shareholders. In this Legal Alert, we highlight salient features of the obligation on companies to disclose beneficial ownership.

WHO IS A BENEFICIAL OWNER?

A beneficial owner is defined as “the natural person who ultimately owns or controls” a company, and includes those who “exercise the ultimate effective control”. This is the individual proprietor who directly or indirectly controls the company. In particular, a beneficial owner is the natural person who directly or indirectly:

❑ holds at least 10% of the company issued shares;

❑ exercises at least 10% of the voting rights;

❑ holds a right to appoint or remove a director of the company; and/or

❑ exercises significant influence or control over the company’s finances and financial policies.

OBLIGATIONS OF A COMPANY

Requirement to keep the Register

Section 93A of the Companies Act requires each company to maintain the Register. A company should file with the Registrar a copy of the Register within 30 days of its preparation.

What should the Register contain?

Rule 3 of the Regulations prescribes the details that should go into the Register. They include identification data, business address, residential address and the nature of ownership or control. The Regulations prescribe the form to be filled and filed with the Registrar (Form B0F2) and the applicable filing fees.

Penalty

If a company fails to maintain the Register, the company and each officer in default risk a fine of up to KES 500,000 upon conviction.

❑ Requirement to file any amendments to the Register

Save for listed companies, all companies should file a copy of any amendments to their Registers within 14 days. These amendments include change of beneficial owners’ particulars and where a person ceases to be a beneficial owner. The Regulations prescribe the forms to be filed.

❑ Duty to investigate

A company has a duty to investigate and obtain particulars from any person that it believes is its beneficial owner. This should be done through a notice to such person requesting for the relevant particulars. A person should respond to the notice within 21 days.

If a person fails to respond to the notice, the company should issue a warning notice, a copy of which should be kept in the Register.

❑ Restriction of persons who fail to comply with a warning notice

A company should restrict a person who fails to comply with a warning notice within 14 days and file the restriction with the Registrar within 14 days of being issued. The effect of a restriction is that transfer of shares by the person is void; the person cannot exercise any rights, such as voting rights; the person cannot receive any shares in an allotment; and no payment, such as dividend, to the person should be made by the company.

❑ Disclosure of unidentified beneficial owner

A company should note in its Register instances where it knows or has reasonable cause to believe there is a beneficial owner that it has not identified; it has not managed to obtain the required particulars; it has issued a restriction notice; or there is a matter in court in relation to beneficial ownership.

❑ Confidentiality

Beneficial ownership information shall not be disclosed to the public. Unless a beneficial owner has consented to disclosure, beneficial ownership information should only be disclosed for communication with the beneficial owner, for the purpose of complying with the Regulations or in order to comply with a court order. A person who discloses beneficial ownership information risks a fine not exceeding KES 20,000, imprisonment for up to 6 months, or both.

THOUGHTS ON IMPLEMENTATION

When is a company required to prepare the Register?

Section 93A requires a company to file the Register within 30 days of its preparation. The timeline within which it should be prepared is not provided. Further clarity should be provided on the preparation timelines.

Is the threshold too low?

The amendment in defining a beneficial owner place the control threshold at 10% of the shares or voting rights. Compared to the control thresholds in the Competition Act, 2010 (No. 12 of 2010, Laws of Kenya) and the Income Tax Act (Chapter 476, Laws of Kenya), being 50% and 25% respectively, the 10% threshold is arguably too low to indicate influence and control in a company. This will be an onerous task on companies with complex shareholding structures.

Potential tax implications

The amendment allows the Registrar to share beneficial ownership information with competent authorities. We see the Kenya Revenue Authority (“KRA”) benefiting from this provision. The information will be of particular interest to the KRA in relation to Kenyan companies controlled by non-resident persons, where considerations around deemed interest, transfer pricing and thin capitalisation come alive.

Impact on investment transactions

The sanctity of anonymity varies from one individual to another. It is customary for investors to require a level of control in the companies they invest in, such as the right to appoint or remove a director, which will require disclosure in the Register. In investment transactions, it will be imperative to bring to light the obligation by investee companies to disclose beneficial ownership by investors, and its potential implications, including the tax considerations discussed above. Given the potential liability, legal advisers to investors will need to include the amendment as a legal due diligence investigation point.

CONCLUSION

In conclusion, the amendments are bound to achieve the often-undesired transparency in shareholding structures of Kenyan companies. Officers in charge of compliance in companies, such as company secretaries, should take note of these Regulations to ensure compliance with the Companies Act, 2015.

This Legal Alert is for your information only. It should not be relied upon without legal advice on its contents. Should you require further information on any of the discussions above, please feel free to reach out to Johnson Kariuki.

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