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LEGAL ALERT BENEFICIAL OWNERSHIP IN KENYA

Prior to the coming into force of the Companies Act 2015, Kenyan companies had no obligation of keeping a register with details of its beneficial owners.  This position was however changed by the recommendation made by the Financial Action Task Force on International Standards on Combating Money Laundering and the Financing of Terrorism and Proliferation, which urged members to maintain adequate and timely information on the beneficial ownership and control of legal persons. Following this Kenya amended the Companies Act 2015, through the Statute Law (Miscellaneous Amendments) Act by introducing section 93A which obliges companies incorporated in Kenya to keep registers of beneficial owners with the relevant information relating to such owners. To this end, the Office of the Attorney General through a Legal Notice dated 18th February 2020, published the Companies (Beneficial Ownership) Regulations 2020 and set a deadline for 31st January 2021 for compliance. The deadline has however been changed by the Business Registration Service, which has since decided to give companies a grace period of six months.  This was done through a Public Notice issued on 27th January 2021. The Notice indicates that the new deadline is 31st July, 2021 and takes effect from 1st February 2021.

Definition of Beneficial Owner

The Regulations define a beneficial owner as the natural person who ultimately owns or controls a legal person or arrangements or a natural person on whose behalf transactions are conducted, and include persons who exercise ultimate effective control over a legal person or arrangement. To bring this into perspective, the Regulations provide a threshold of what constitutes beneficial ownership. It provides that a natural person qualifies to be regarded as a beneficial owner if the person; holds at least 10% of the issued shares in the company either directly or indirectly, exercises at least 10% of the voting rights either directly or indirectly, holds a right directly or indirectly to appoint or remove a director of the company, or exercise significant influence or control directly or indirectly over the company. Individuals who meet this criteria in a company qualify to be regarded as beneficial owners and to be listed in the company register as such. In compliance with the Regulations, a company shall first identify its beneficial owners and enter in its register particulars about the beneficial owner. 

This information shall include the; full name, national ID number, personal identification number, nationality, date of birth, postal address, business address, residential address, telephone number, email address, occupation or profession, nature of ownership control, among other details listed in the Regulations.

Investigation of Beneficial Owners

The company in line with this, is required to give notice to a person it reasonably believes to be a beneficial owner requiring the person to provide the particulars mentioned above. A person who receives the notice is required to comply within 21 days from the date of receiving the notice, failure to which a company shall issue a warning notice. 

The warning notice as stipulated under the Regulations shall; specify the date on which the warning notice was issued and the date of compliance, be accompanied by a copy of the notice requiring particulars, require the person to comply with the notice requiring particulars, state that its restricting the relevant interest of the person in the company, and shall explain the effect of the restriction.

Restriction

Failure to comply with the warning notice within 14 days from the date of the notice, invites a restriction from the company on the rights and privileges a person enjoys in the company. The restriction notice shall be in writing and shall include the date when the warning notice was issued, the date when the restriction was issued and the effect of the restriction. The effect of the restriction is that; any transfer of the interest by the person is void, the person shall not exercise his right in respect of the interest, no shares shall be issued to the person in an allotment, no payment shall be made to the person in respect of the interest he/she holds in the company.

The restriction can however be withdrawn by the company if the warning notice is complied with within the time frame specified in the notice. A company will be required to note in its register of beneficial owners the date on which the withdrawal was issued, the date on which the company became required to withdraw the restriction, and the person’s relevant interest in the company. The copy of the withdrawal shall then be filed by the company to the registrar within 14 days from the date the withdrawal was issued. 


Disclosure of Beneficial Owner Information

In line, with the right to privacy, a company is required not to disclose any information about its beneficial owner. The Regulations further provide that information about a beneficial owner shall only be disclosed subject to a beneficial owner’s consent. It further provides that such information shall not be made available to the public and that it shall only be made available to a competent authority upon a request by the competent authority to the Registrar.

Key Challenges

A. Shares held in Trust Shares held in Trust  

Shares held in companies through nominee agreements shall have to be disclosed as to the true economic owner of such shares. Any control in the company exercised indirectly should also be disclosed. Persons having voting rights through proxies shall have to disclose on whose behalf the righting voting right is being held. It will be difficult in this case to point out  individual beneficial owners due to the complex ownership structure presented by such arrangements.

B. Lack of Awareness & Deadline 

The period provided for corporations to submit the details of their beneficial wonders proves to be short. This is especially so given the numerous challenges that companies are facing in trying to comply including issues surrounding linking of companies, change of officials, filing for dormant companies and foreign companies. The attempt to reach as many people as possible with the necessary information which needs to be broken down to them on the requirements of the regulations at least needed more time.

Procedure

The process of registering beneficial ownership information is simple and can be done online via BRS eCitizen using the step by step procedure described below:

The user uses eCitizen portal and logs in if he has an account, or registers if he doesn’t have an account. Visit ecitizen.go.ke

In the dashboard, the user should click on Business Registration Services

If asked to login, the user should do so again

User should go to Business

If the B.O status is pending, then user needs to provide his information

Click on View

Then at the top menu click Maintain a Company

Click on Beneficial Owners tab on the left

Then on the right click Change Particulars (Change of Officials)

Then click Update BO (Beneficial Ownership) tab

Fill in all the details (total ownership, direct ownership, voting rights, influence in the company, residential address, date of becoming a B.O)

After the user is done filling in all the details, the user should click Save.

Then click Save and Continue

User should fill in the required information in the form, sign, and upload the document

Then click Save and Continue

User should confirm that the information he has provided is correct and click Finish

And the process is complete


Frequently Asked Questions 

a). What type of companies need to register for beneficial owners? 

All companies both limited by shares or guarantee other than foreign registered companies need to register their beneficial owners. Currently the business registration portal only provides for the registration of BO for only companies limited by shares.

 

b). What happens where companies are still in the process of being linked and are yet to be verified by the Companies Registry?

In this case, companies are advised to make official communication with the Registrar to communicate this challenge and have it on record. This could help mitigate against the penalties as such companies are still unable to register their beneficial owners.


c). What happens where there are share transfers pending approval or change of officials pending approval?

In this case, companies are advised to make official communication with the Registrar to communicate this challenge and have it on record. This could help mitigate against the penalties as such companies are still unable to register their beneficial owners. 


For more information on Beneficial Ownership and the registration services therein, kindly reach us on info@lawyershub.ke 



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