Pursuant to Section 93A of the Companies Act and the Companies (Beneficial Ownership Information) Regulations, 2020 (hereinafter referred to as “the Regulations”), every Company duly incorporated in Kenya is required to disclose information as regards the beneficial owners of its shares, to wit, every Company is required to:-
- Take reasonable steps to identify its beneficial owners;
- Keep a register of its beneficial owners; and
- Lodge a copy of the said register with the Registrar of Companies in the prescribed form.
On 16th October 2020, the Registrar of Companies issued a public notice that operationalized the Beneficial Ownership E-Register with effect from 13th October 2020. This, in turn, prompted the requirement for every Company to keep and lodge a register of its beneficial owners with the Registrar of Companies within thirty (30) days of its preparation.
B. LEGAL ISSUES
In light of the foregoing the following issues ensue:
- The persons considered beneficial owners;
- The obligations of Companies in compliance with the said Regulations; and
- The consequences of non-compliance with the Regulations.
C. LAW AND ANALYSIS
I. The Persons Considered Beneficial Owners
Regulation 2 of the Companies (Beneficial Ownership Information) Regulations, 2020 defines a beneficial owner as follows:
“a natural person who ultimately owns or controls a legal person (a company) or arrangement the natural person on whose behalf a transaction is conducted and includes those persons who exercise ultimate effective control over a legal person or arrangement.”
More specifically, Regulation 3(2) qualifies a beneficial owner as a natural person who meets any of the following conditions:
- Holds at least 10% of the issued shares in the company either directly or indirectly;
- Exercises at least 10%of the voting rights in the company either directly or indirectly;
- Holds a right, directly or indirectly, to appoint or remove a director of the company; or
- Exercises significant influence or control, directly or indirectly, over the company. Significant influence or control is defined under the Regulations to mean:
“The ability to participate in decision making when it comes to matters relating to finances and financial policies of a company without necessarily having full control over them.”
The word “arrangement” is also defined by the said Regulations as follows:
“an artificial entity, without legal personality, associating one or more natural or legal persons together in an ownership or control relationship, but without implying that the parties to this arrangement have any other form of collective legal identity”
By dint of the definition above, an example of an arrangement would be where a shareholder has appointed a Proxy or Representative to exercise all or any of its, his or her rights, for example, voting rights pursuant to Section 298 of the Companies Act.
Based on the foregoing, the following persons should be considered as beneficial owners in a Company:
- Natural persons who hold at least 10% of the issued shares in a Company either directly or indirectly;
- Natural persons who exercise at least 10%of the voting rights in a Company either directly or indirectly for example where the shareholder has appointed a proxy to exercise its, his or her voting rights;
- Natural persons in a Company who hold a right, either directly or indirectly, to appoint or remove a director of the company without necessarily being a Shareholder; or
- Natural persons in a Company who exercise significant influence or control, directly or indirectly for example over matters relating finances and financial policies of a Company as described above.
II. The Obligations of a Company in Compliance with the Regulations.
a). Obligations of a Company with respect to beneficial owners
Once the beneficial owners are identified, the Company should proceed to obtain the following particulars with respect to its beneficial owners:
- Full name;
- Birth Certificate Number, National identity Card Number or Passport Number;
- Personal identification number;
- Date of Birth;
- Postal, Business and Residential Addresses;
- Telephone number and email address;
- Occupation or Profession;
- The nature of ownership or control;
- The date on which any person became a beneficial owner of the company; and
- The date on which any person ceased to be a beneficial owner.
The aforesaid particulars should be entered in the prescribed form BOF1 and thereafter, lodged with Registrar of Companies within 30 days of its preparation.
b). Obligations of a Company with respect to suspected or untraceable beneficial owners
Notably, Regulation 11 of the Companies (Beneficial Ownership Information) Regulations, 2020 imposes a duty on Companies to investigate and obtain particulars of its beneficial owners where it has reasonable cause to believe that a person is a beneficial owner. This should be done by giving the suspected beneficial owner a warning notice pursuant to Regulation 6 to provide its, his or her particulars listed above.
The suspected beneficial owner is required to respond to the aforesaid notice within 21 days, failure to which, the Company is required to issue, keep and lodge a copy of the warning notice in its register of beneficial owners. Additionally, and pursuant to Regulation 7, the Company is required to issue the suspected beneficial owner a restriction notice within fourteen days from the date of the warning notice.
III. The Consequences of Non-compliance with the Regulations
a). Consequences attributable to non-compliant beneficial owners
Failure to provide a register of beneficial owners effectively curtails the enjoyment of any rights or interest granted to that beneficial owner.
Regulation 9 provides that once a Company issues a restriction notice with respect to its beneficial owners ‘relevant interest, the following consequences ensue:
- Any transfer of interest by the restricted beneficial owner is void;
- No rights will be exercisable in respect of that restricted interest,
- No shares may be issued with respect to the restricted interest; and
- No payment may be made of sums due from the Company in respect of the restricted interest.
b). Consequences attributable to non-compliant beneficial owners
Section 93A (5) and (6) of the Companies Act provide that if a company fails to keep and lodge a register of its beneficial owners, the company and each officer of the company who is in default, commit an offense and on conviction, are each liable to a fine not exceeding Kenya Shillings Five hundred (Kshs. 500,000.00).
In light of the statutory provisions hereinabove quoted, we opine it is in the best interest of every company to commence the process of identifying its beneficial owners in order to keep and lodge a register of its beneficial owners with the Registrar of Companies in the soonest.
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