Disclosure of Beneficial Ownership

The Companies Act, 2015 was amended by the Companies Act, 2017 to include, amongst other things, the concept of “beneficial ownership” by including section 93A of the Principal Act. The Amendment Act establishes a register in order to record the information of beneficial ownership and control of Kenyan companies.

The Companies Regulations were promulgated under Legal Notice 12 of 2020. The concept of beneficial ownership was established as part of Kenya’s efforts to battle corruption and increase transparency in the ownership and control of legal entities.

The Companies Registry of Kenya recently issued a notice stating the operationalisation of the beneficial ownership registry from 13 October 2020.

The effect of registering a “beneficial owner” has numerous implications across different spheres of practice. The following commentary aims to outline these effects in practice.

Who is a Beneficial Owner?

A beneficial owner under the Regulations must be a natural person and not a legal person. In order to be classified as a Beneficial Owner, a natural person must:

• holds at least ten per cent of the issued shares in the company either directly or indirectly;
• exercise at least ten per cent of the voting rights in the company;
• hold a right to directly or indirectly appoint or remove a director of the company; or
• exercise significant influence or control over the company.

This definition includes persons who may hold significant influence or control as a result of a variety of commercial arrangements or instruments such as provisions in the company’s constitutional documents, the rights attached to the shares or securities which a person holds, shareholder agreements or other agreements resulting in giving such person material influence over the company and its affairs.

Obligations of a Company

The Regulations place the following obligations on companies:

      1. A company shall take reasonable steps to identify its beneficial owners and enter their details into a register of beneficial owners which is different from the register of members;

      2. The following information will be included in the register of beneficial owners;

         a. the full name;

         b. full name;

         c. birth certificate number;

         d. national identity card number or passport;

         e. Kenya Revenue Authority personal identification number;

         f. nationality;

         g. date of birth;

         h. postal, business and residential address;

         i. telephone number;

         j. email address;

         k. occupation;

         l. nature of ownership or control; and

         m. date on which a person became a beneficial owner.

      3. The Regulations require a company to file with the Registrar of Companies, within 30 days of preparation, a copy of the company’s register of beneficial owners. Furthermore, if there is any change in the composition of the company’s beneficial ownership, these changes shall be made on the register of beneficial ownership and filed with the Registrar as soon as the change occurs.

      4. Where a company believes that a person is a beneficial owner it is the company’s duty to investigate and notify the potential beneficial owner. Once notified, the beneficial owner must furnish their particulars within days, failure to which the company must issue a “warning.”

      5. Once a warning has been registered against a beneficial owner’s interest and the beneficial owner persists in omitting their particulars a restriction is placed on the beneficial owner’s interest in the company and is registered in the company’s beneficial ownership register as well as with the Registrar.

Restrictions

The net effect of a restriction on a beneficial owner’s interest in a company is the inability to transact or benefit from the proceeds of their interest in the company. In practice, the restriction against a beneficial owners interests would mean that;

      (i) the beneficial owner would not be able to exercise any rights in respect of their interest;

      (ii) the beneficial owner would not be able to transfer their interest in the company; and

      (iii) no payments from the company can be made to the Beneficial Owner as a result of their interest.

Disclosure of Beneficial Ownership and Data Protection

Although companies have a duty to gather information regarding beneficial ownership, its disclosure is limited to the beneficial owner, the company and the Registrar. It must be noted that the information is not public information, and as such cannot be disclosed for the general public’s consumption. The company is prohibited from disclosing information gathered from a beneficial owner save for if the disclosure is;

      (i) required by the Regulations;

      (ii) for effecting communication with the beneficial owner;

      (iii) in compliance with a court order; or with

      (iv) the written consent of the beneficial owner.

Disclosure of information provided by a beneficial owner in any manner other than in compliance with the Regulations is punishable by a fine not exceeding Kenya Shillings twenty thousand or imprisonment for six months or both.

Disclosure of Beneficial Ownership and Nominee or Trustee Shareholding

Companies, for a variety of reasons, have had interests of shareholders held through nominees and trust arrangements. In order to comply with the Regulations, companies will need to disclose who the beneficial owner under a nominee arrangement is and who the ultimate beneficiary is under a trust arrangement.

In these instances, the beneficial owner would be the person that derives the true economic benefit from the legal interest in the company.

Conclusion

Transparency in the beneficial ownership of companies in Kenya is a reality. This will inevitably have an effect on ownership through nominees and trust arrangements. This poses additional considerations when structuring transactions where the non-disclosure of a beneficial owner is key.

This would need careful consideration, on a case by case basis of the optimal structure to adopt.