The Companies Act, 2015 (The Act) Was Enacted To Consolidate And Reform The Law Relating To The Incorporation, Registration, Operation, Management And Regulation Of Companies; To Provide For The Appointment And Functions Of Auditors And To Make Other Provision Relating To Companies And Related Matters (Preamble To The Act). This Makes It One Of The Most Comprehensive Pieces Of Legislation In Kenya.
The Objects Of The Act (Sec 2) Are To:
The Scope Of The Act Is Rather Wide As The Act Makes Provision For The Various Types Of Companies And Their Formation, The Constitution Of Companies And Their Capacity. The Act Makes Provision For Directors (their Powers, Liabilities And Disqualification), Company Secretaries, Resolutions And Meetings Of A Company, Share Capital And Company Debentures. Takeovers, Compromises, Arrangements, Reconstructions And Amalgamations Are Also Provided For In The Act. There Is Also Provision Made For Statutory Auditors, Auditing Of Financial Statements And Annual Returns And Company Investigations. Foreign Companies Are Also Comprehensively Discussed In The Act.
There are several types of companies listed in The Act. The companies and their characteristics are as listed below:
Take note that a company limited by guarantee that was formed and registered before commencement of The Act is not prohibited from having a share capital.
Take note that a private company can be founded by a single person.
Take note that a public company must be founded by a minimum of two people.
FORMATION OF COMPANIES (Sec 11).
A company is formed when persons wishing to form a company subscribe their names to a Memorandum of Association and comply with the requirements for registration set out in The Act. Section 12 defines a Memorandum of Association as a memorandum stating that subscribers wish to form a company and agree to become members take at least one share each, in a company that has a share capital. Such memorandum must be in the form prescribed by the regulations and must be authenticated by each subscriber.
The requirements for registration are that an application for registration must be lodged with the registrar accompanied by a Memorandum of Association as well as a copy of the Articles of Association, where the model articles are not adopted or where they are modified (Sec 13).
An application for registration must state the proposed name of the company, the proposed location of the registered office of the company, whether the company’s liability is limited and if so whether by shares or guarantee and whether the company is a private or public company. The application, where applicable, also consists of a statement of capital and initial shareholding, a statement of guarantee and a statement of the company’s proposed officers.
Companies that are formed for an unlawful purpose may not be registered.
Registration of a company has the following effect (Sec 19): the subscribers to the Memorandum of Association become a body corporate and the company is able to do all the things that a company can which include having perpetual succession, owning property and suing or being sued in its own name.
The registration process of a public company is similar to the one outlined above save for the requirement that a public limited company must have a name that ends with the words ‘public limited company’ or the abbreviation ’PLC’ (Sec 53).
Also, while it is not necessary for a private company to have a company secretary, it is mandatory for a public company to have a secretary.
The articles of association are a company’s constitution (Sec 20). They set out the objects and the mandate of a company, the powers of members, the powers, liabilities and disqualification of directors. Articles also outline the conduct of members of a company. They bind the company and its members as though they had agreed with each other to observe the constitution (Sec 30).
In order to be registered (Sec 13), the Articles of Association of a company must:
The Companies (General) Regulations, 2015 found here do provide, in the third schedule, the model articles of association for a public company limited by shares. The fourth schedule provides for model articles of association for a private company limited by shares and the fifth schedule provides for model articles of association for companies limited by guarantee.
Where a company adopts part of the model articles and modifies the rest, it is required to forward to the registrar a copy of the modified articles during registration. Where a company does not adopt the model articles and instead prepares its own articles, it too is required to forward to the registrar a copy of its articles during registration.
A company’s articles can only be amended through a special resolution (Sec 32). The amended articles are to be lodged with the Registrar within 14 days of passing of the resolution (Sec 24). Failure to do so constitutes an offence.
An amendment to the articles of a company are not binding on a member if they are passed after the date on which the person became a member and specifically if the amendment requires such a member to take up or subscribe for more shares or to increase the member’s liability. Such an amendment is however binding on a member who agrees in writing to be bound by the amendment (Sec 23).
Objects of a company are the reasons for which the company is formed. Alternatively, these are the activities that a company intends to carry out and that the company is permitted by its constitution to carry out.
The objects of a company are unrestricted unless they are restricted by the company’s articles of association (Sec 28). Any amendment to a company’s statement of objects must be lodged with the registrar for registration by a notice giving particulars of the amendment.
These are the decisions of a company made at either a general meeting or at a special meeting, with respect to matters affecting the company. Resolutions of a company may either be ordinary resolutions or special resolutions. Where a resolution is passed in connection to the company, it is binding on all members. However, if passed in relation to a class of shareholders, then the resolution is only binding on that class of shareholders.
Resolutions, including those affecting a company’s constitution (Sec 27), are to be lodged with the registrar for registration within 14 days of passing of the resolution or agreement. This is done by submitting a copy of the resolution or the agreement and in the absence of a written resolution; the company can submit a written memorandum setting out the terms of the resolution or agreement.
A company’s capacity cannot be called into question (Sec 33). They are deemed to have capacity for both their actions and omissions. For this reason, a company is considered to have the capacity to carry out their objects.
Directors have the power to bind a company in favour of a person dealing with the company in good faith. This power is free of any limitation contained in the company’s constitution (Sec 34). A company is also bound by its company seal as well as the signature of an authorised signatory to the company.
A company may have a company seal whose main purpose is the execution of documents. It is no longer mandatory for a company to have a common seal. A company seal must have the name of the company engraved on it in legible characters. A common seal has the power to bind the company.
A company that has a common seal may have an official seal for use outside Kenya (Sec 42). Such seal should be a facsimile of the common seal with the addition, on its face, of the place or places where it is to be used. A company may also have an official seal for sealing securities issued by the company or documents creating or evidencing securities (Sec 43). Such seal should be a facsimile of the common seal with the addition, on its face, of the word “Securities”.
This is the alteration of the status of a company. A company may convert itself:
The steps for conversion are as follows:
A subsidiary is a company of which another company is its holding company. A holding company is a company that controls the composition of the other company’s Board of Directors, controls more than half of the voting rights in the other company, holds more than half of the issued share capital of the other company or is a holding company of the other company’s holding company (Sec 3).
A subsidiary company, while not independently owned often continues to operate as an individual entity though major corporate decisions are made by the holding company. It is therefore a separate legal entity and does not have any bearing on the debts or losses incurred by its holding company. The company can be similar or different from its holding company.
For the subsidiary to be registered, key documents are required, namely:
The subsidiary company has the right:
However, a subsidiary is prohibited from being a member of its holding company (Sec 108).
MEMBERS OF A COMPANY.
The subscribers to the Memorandum and Articles of associations become members of the company on the registration of the company (Sec 92). Any other person who agrees to become a member of a company becomes a member of the company when his or her name is entered in the register of members.
A company needs to keep a register of its members which contains their names, addresses, date which each member was registered and the date on which any person ceased to be a member (Sec 93). Such register is to be kept at the registered office of the company and a copy of the same lodged with the registrar (Sec 94). Companies with more than 50 members are required to keep an index of its members (Sec 95). For public companies, such register or index is to be kept open for inspection by any member of the company or any other person.
The Company may remove a member from the register upon the expiry of ten years after the date on which the person ceased to be a member (Sec 101). If a member is removed before the expiry of the ten years then the officer of the company who is in default commits a felony and on conviction is liable for a fine not exceeding five hundred thousand shillings. Single member companies will have the name and address of that member entered in the register of members accompanied by a statement that the company has only one member (Sec 102).
The members of a company have the following rights under Section 114 (3) of the Companies Act:
Members of traded companies may nominate a person to enjoy information rights which are (Sec 115):
Such nomination may be terminated or suspended at the request of the member of a company or the nominee (Sec 119). It is also terminated by death, bankruptcy or liquidation of the company.
Members of a company have the responsibility to ensure that:
These are the persons to whom the management of a company is entrusted. A private company must have at least one director while a public company must have at least two (Sec 128). At least one of the directors must be a natural person (Sec 129).
To be eligible for appointment as a director, one:
A person may be disqualified from holding the office of director for the following reasons:
The first directors of a company are appointed by the subscribers to the company. Thereafter, directors are elected by members of the company. A proportion of the directors should retire every year but be eligible for re-election. In public companies, more than one director cannot be elected by a single vote unless a resolution has been passed to allow a single vote. Upon appointment, Form CR 6, found here is filled in and lodged with the Registrar for registration.
A director may, however, be removed from office by an ordinary resolution (Sec 139). However special notice must be given of any resolution to remove the director or to appoint another person to replace the director at the meeting at which the removal takes place. A notice of cessation of office, Form CR 9, found here is to be lodged at the registrar’s for registration.
Companies are required to keep a register of directors (Sec 134) which should be open for inspection. Such register is to contain particulars of the directors such as their names, service addresses and nationality among others (Sec 135 & 136). Companies are also expected to keep a register of directors’ addresses. The registrar must be notified of any change to either register within 14 days of the change.
Directors have several rights owing to their office. These include:
They also have powers such as:
Duties of the directors are owed to the company and not to individuals (Sec 140). These duties are based on common law rules and equitable principles. The duties of directors as set out in The Act are:
Directors are also not expected to compete with the company.
Directors of a company are liable for any negligence, default, breach of duty or breach of trust in relation to the company. Any provision that attempts to exempt a director from liability in relation to the aforesaid is void (Sec 194). Similarly, any provision of the company providing indemnity in connection with the above listed is void.
Directors found guilty of contravention of any part of The Act are liable to pay a fine or imprisonment.
Several transactions with directors of a company now require the approval of members of the company. These can be reduced to three categories as follows:
In this category, the following exceptions do not require approval of members:
These transactions also have exceptions that do not require the approval of members as follows:
This category too has exceptions that do not require member’s approval. They are:
Subscribe to our mailing list to get updates to your email inbox