Kenya enacted the Companies Act No. 17 of 2015 [PDF] on September 11, 2015, to replace the Companies Act Cap. 486 (1948) [PDF]. Among the many changes that come with the 2015 Act are new requirements for registration of foreign companies in Kenya. The 2015 Act is, however, not fully operational yet. Pursuant to its section 1(3), the provisions of the Act will come into force at such time or different times as the cabinet secretary may, by notice in the Kenya Gazette, appoint.
Part XXXVII of the 2015 Act, which deals with foreign companies, has not, at the time of this publication, come into force but is expected to come into force in due course. Registration of foreign companies in Kenya is, therefore, for the time being, still regulated by the 1948 Act. The requirements will, however, change drastically once Part XXXVII of the 2015 Act comes into operation.
Current Requirements for Registration of a Foreign Company
Part X of the 1948 Act provides for the establishment of a place of business in Kenya by companies incorporated outside the country (foreign companies). It requires a foreign company to apply for registration in Kenya within 30 days of establishing a place of business within Kenya. Nonetheless, a foreign company is not deemed to have a place of business in Kenya solely on account of its doing business through an agent in Kenya at the place of business of the agent.
The registration process under the 1948 Act involves the filing of the company’s constitution (memorandum and articles of association) together with some statutory forms setting out the details of the foreign company’s directors, such as the company secretary, the registered offices in Kenya and in the country in which the company is incorporated and the details of at least one person resident in Kenya who is authorized to accept service of process. There are no requirements for local shareholding of the foreign company.
Requirements for Registration of a Foreign Company under the 2015 Act
Pursuant to the 2015 Act, a foreign company shall not carry on business in Kenya unless it is registered in Kenya, or has applied for registration in Kenya but the application has not been dealt with within the prescribed period. Carrying on business, in this regard, is defined to include, but not limited to, offering debentures in Kenya or being a guarantor for debentures offered in Kenya. Thus, once the new law takes effect, for a foreign company to offer a debenture in Kenya or even be a guarantor for a debenture offered in Kenya, the foreign company must be registered in Kenya. This is particularly problematic considering the new local shareholding requirements for registration of a foreign company.
A foreign company desirous of being registered in Kenya must demonstrate that at least thirty percent of its shareholding is held by Kenyan citizens by birth. This is another major change and one without any clear justification.
An application for registration as a foreign company in Kenya under the 2015 Act is to be lodged with the Registrar of Companies. The application should contain information to be prescribed in yet to be published regulations, comply with the requirements with respect to the company’s name and the appointment of a local representative and be accompanied by the prescribed fee and the required documents.
Requirements with Respect to Name and Appointment of a Local Representative
In its application for registration as a foreign company in Kenya, the company may specify the name under which it seeks to carry on business in Kenya. This may either be the name of the company under the law of the country or territory in which it is incorporated or an alternative name, other than its corporate name, which the company desires to be its corporate identity in Kenya.
A foreign company is also required to appoint a local representative in Kenya who not only receives service of process but also ensures that the foreign company complies with the requirements of the law. The local representative is personally liable if a penalty is imposed on the company for a contravention or failure to comply with the Act, if the court hearing the matter is satisfied that the local representative should be so liable.
Documents Required to Accompany Application for Registration
An application for registration of a foreign company is to be accompanied by the following documents:
(i) A certified copy of the foreign company’s current certificate of incorporation or registration in the company’s place of origin, or a document of similar effect;
(ii) A certified copy of the company’s constitution (memorandum and articles of association);
(iii) A list containing the names of the company’s directors and shareholders, and their personal details;
(iv) A memorandum executed by or on behalf of the company stating the powers of directors, if any, who reside in Kenya and are members of a local board of directors;
(v) In relation to any existing charge on property of the foreign company that would be a registrable charge if the foreign company were a company incorporated in Kenya, the documents that would be required to be lodged for registration with the Registrar of Companies;
(vi) Notice of the address of the company’s registered office in its place of origin, if any; otherwise, the address of its principal place of business in its place of origin; and
(vii) Notice of the address of the company’s registered office in Kenya.
Other Changes Affecting Foreign Companies
In addition to the registration requirements, the 2015 Act introduces, inter alia, the following changes which affect foreign companies:
(i) Safeguards against the disclosure of a natural person’s residential address where this information is required to be provided by the company;
(ii) A mechanism for the appointment of a liquidator of a foreign company in respect of the foreign company’s property in Kenya; and
(iii) The recognition that a foreign company may have a local board of directors with specific powers in addition to its foreign directors.
Potential Consequences of the New Registration Requirements
It will obviously be more difficult and burdensome for foreign companies to do business in Kenya in light of the new registration requirements. Indeed, if a foreign company carries on business in Kenya without registration, the company and each of its officers in default commit an offence and, on conviction, each of them is liable pay a fine of five million shillings.
The new registration requirements — particularly the shareholding requirements — are likely to discourage foreign companies from doing business in Kenya or, at least, from registering as foreign companies. Most of the foreign companies that are still desirous of doing business in Kenya are now likely to incorporate subsidiaries in Kenya instead.
James Tugee is licensed to practice law in Kenya. He is an associate attorney at Hamilton Harrison & Mathews in Nairobi, Kenya. He specializes in commercial litigation and arbitration. He is currently on leave as he pursues his LLM studies at the University of Pittsburgh School of Law.
Suggested citation: James Tugee, Drastic Changes to Requirements for Registration of Foreign Companies in Kenya, JURIST – Student Commentary, December 12, 2015, http://jurist.org/student /2015/12/james-tugee-kenya-companies.php.
This article was prepared for publication by Dave Rodkey, an Assistant Editor for JURIST Commentary service. Please direct any questions or comments to him at firstname.lastname@example.org
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