In October 2020, the government notified Kenyans through the media and notification on their E-citizen portals of mandatory disclosure of beneficial owners. This was followed by warnings of penalties of Ksh.500,000 to companies to those who fail to do so by January 31st 2021 (then extended to 31st July 2021). Kenyans were confused by the new law especially as it required furnishing the Registrar of companies with personal information which they already had or information that companies were previously not allowed to disclose.
Context of the Law
In 2015, when the Companies Act was introduced, the requirement to disclose beneficial owners was not included. The government, in a bid to have increased transparency in companies, introduced an amended to Section 93 of the Act requiring companies to disclose the information of beneficial owners in the register of members (shareholders).
However, the amendment was problematic as it contradicted the Companies Act which prohibited companies from recording trust arrangements.
In 2019, the Statute Law (Miscellaneous Amendments) Act No.12 of 2019 resolved the confusion in stating that companies were required to keep two separate registers;
1) register of members
2) register of beneficial owners.
In March 2020, the Companies (Beneficial Ownership Information) Regulations was enacted and thereafter the Registrar of Companies operationalized the Beneficial Ownership (B.O) E-register on 13th October 2020.
The primary objective of the regulation is to increase transparency in ownership in Kenyan Companies and comply with international standards on transparency on corporate governance.
Who qualifies to be a beneficial owner?
The notice requires all companies to keep and lodge a register disclosing the persons (natural persons not corporates/companies) who exercise ultimate effective control/influence in the company, or over a legal person (where a corporate/company is a shareholder).
A natural person who:
a. Holds at least 10% of the issued shares in the company either directly or indirectly;
b. Exercises at least 10% of the voting rights in the company either directly or indirectly;
c. Holds a right, directly or indirectly, to appoint or remove a director of the company; or
d. Exercises significant influence or control, directly or indirectly, over the company.
*Significant influence/control, in this context, refers to a person who participate in making the decision of the finances and financial policies of the company*
What details are entered into the register?
The beneficial owner’s full name; birth certificate number, national identity card number or passport number; personal identification number; nationality; date of birth; postal address; business address; residential address; telephone number; email address; occupation or profession; nature of ownership or control; the date on which any person became and/or ceased to be a beneficial owner; and any other relevant detail that the Registrar of Companies may from time to time require.
Obligations of the Company
Companies have a duty to investigate, obtain and file details of persons where they have reasonable cause to believe a person to be a beneficial owner. This is through giving a 21-day notice requesting for information. The person is given 21 days to respond, if no response is given a warning letter is issued to restrict the interest of the party; a copy of the warning letter is kept by the company. If no response is given by the other party in 14 days, a notice of the restriction is filed in the company register as well as the Registrar of Companies.
The restrictions of interest will have the effect of;
- voiding any transfer of shares;
- preventing such persons from exercising any rights attached to the interest;
- preventing issuance of shares in allotment and;
- preventing payment to made to such persons in respect to the interest held.
Restrictions on disclosure of beneficial ownership details
The regulation provides that, the beneficial ownership information is protected and not be made available to the public. The Regulations only permit disclosure in limited circumstances listed below:
- where it is for communication purposes with the beneficial owner for compliance with the Regulations;
- in compliance with a court order;
- upon the request of a competent authority such as the office of the Attorney General; or
- with the written consent of the beneficial owner.
The Regulations make it an offence, punishable by a fine not exceeding KES 20,000 or imprisonment for a term not exceeding 6 months, for the company to unreasonably disclose beneficial owners’ information.
Issues of Concern with the Regulation
The deadlines imposed by the Companies’ Registrar are not realistic because of the backlogs of applications for linking of companies which prevent companies from filing their Beneficial ownership registers.
Slow processing of beneficial ownership applications where a corporate body is a shareholder preventing the companies from actually filing their registers, through no fault of their own.
The control thresholds set by the Companies Act are 10%, this contrasts with the Income Tax Act that defines control using a threshold of 25%. Considering that the Beneficial ownership concept has tax implication; the standardization of the percentage should be done.
Kenya’s data protection framework is still budding and many Kenyan hold concerns as to the safety of such personal information.