The Companies Act, No.

17 of 2015

George Kinyua1

This Act, which the President signed into law on 11 th September 215, is, by all means a bulky piece. It
has 1,026 sections grouped into 42 parts each of which has several divisions and supplemented by 6
schedules. It describes itself as “An Act of Parliament 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; to make other provision relating to companies; and to provide
for related matters.”

The Act is intended to commence in portions. Section 2, which outlines the Objects of the Act, and
section 1, which has provisions on commencement of the Act, commence on the date of publishing,
that is, 15th September 2015. All other sections are to commence by notice to be gazzetted by the
Cabinet Secretary. However, if the Cabinet Secretary fails to gazette this notice within 9 months after
15th September, Parliament may, by resolution of both Senate and National Assembly, bring into
operation such of those provisions as not yet been commenced.

To begin with, the Act makes it possible to form a single-member company. Initially, a company had
to have at least 2 members. This means that an investor who would rather invest alone can do so
without having to look for partners.

The Act, like the old one, allows several types of companies. However, the Act now has clear
guidelines on how a company that wishes to change its status may do so. Thus, a company may alter
its status from private to public, public to private, private limited company to unlimited company,
unlimited company to limited company, and public company to unlimited liability company.
Companies with more than 50 members are required to keep an index of members. Generally, with
certain exceptions, a subsidiary is prohibited from holding shares in their holding companies and any
shares allocated by a holding a company to its subsidiaries is void.

Like the old Act, the Act stipulates that a private company must have at least one director and a
public company must have at least two directors. For one to be appointed a director, they need be at
least 18 years. The is also clear that members may, by ordinary resolution at a meeting, remove a
director before the end of the director’s period of office, despite anything to the contrary in any
agreement between the company and the director. The members then have the option of filling the
vacancy or having it filled as a casual vacancy. Notably, a director so removed has a right to protest.

Notably, the Act retains the right of members to bring a derivative action on behalf of the company.
Such action may be brought against the director or another person, and it must be in respect of a
cause of action arising from an actual or proposed act or omission involving negligence, default,
breach of duty or breach of trust by a director of the company.

All public companies are required to have at least one company secretary. However, a private
company is only required to have a company secretary if it has a paid up capital of five million
shillings or more.

With regard to share capital, the Act provides that shares of a company may not be converted into
stock and an attempt to convert a company’s shares into stock has no effect. Besides, shares in a
limited company having a share capital are each required to have a fixed nominal value and must be
denominated in shillings. Most notably, if, at the commencement of this section, an existing

1LL.B (Hons.), Dip. Law (KSL, Ongoing 2015). The writer is a lawyer, researcher and entrepreneur.
He can be contacted on emails georgegathigia@gmail.com, ggklegal@gmail.com and
gkinyua@lexgroupafrica.com or mobile number +254717163906.
company’s capital consists of stock, the amount of stock is converted to shares of one shilling each.
Further, a company that has a share capital shall ensure that each of its shares is distinguished by an
appropriate distinguishing number.

The Act also has provisions on distribution of company assets. A company may make a distribution
only out of profits available for the purpose. A public company may make a distribution only if the
amount of its net assets is not less than the aggregate of its called-up share capital and undistributable
reserves and the distribution does not reduce the amount of those assets to less than that aggregate.

Public Offers of Securities

An interesting introduction in the Act is Part XIX which has introduced public offers of securities into
the Companies Act. Section 510 defines a public offer for purposes of the Part to include an offer to
any section of the public, however selected. The section also defines what is not to be considered a
public offer and what is to be deemed a private concern of the person receiving an offer.

Section 511 prohibits public offers by a private company limited by shares or a company limited by
guarantee may. Section 512 says that if a member or creditor of a company, or the Attorney General,
alleges that a company is proposing to act in contravention of section 511, they may apply to the
Court for an order restraining the company from contravening that section. Interestingly, section 515
states that nothing in this Part affects the validity of an allotment or sale of securities or of an
agreement to allot or sell securities. This means that offers made, or shares sold, in contravention of
section 511 are not by that reason only invalid.

Section 516 prohibits public companies from conducting business or exercising a borrowing power
unless the Registrar has issued it with a trading certificate. That section also says that the Registrar
shall issue that certificate only if satisfied that the nominal value of the allotted share capital of the
company is not less than the authorised minimum. Section 518 decrees this minimum authorized
capital to be Kshs. 6,750,000. If a company contravenes section 516, the company, and each officer of
the company who is in default, commit an offence and on conviction are each liable to fine not
exceeding Kshs. 1,000,000.

Redeemable shares
Part XX has elaborate provisions on redeemable shares. In general, a limited company having a share
capital may issue redeemable shares that are to be redeemed, or are liable to be redeemed, at the
option of the company or the shareholder. Besides, the directors of a limited company may determine
the terms, conditions and manner of redemption of shares if they are authorised to do so by the
articles or by a resolution of the company.

Treasury shares
With regard to treasury shares, that is, a purchase or acquisition of shares by a limited company of its
own shares. Besides, the purchase or acquisition is made out of distributable profits and the shares
are qualifying shares. The company may then either hold the shares as treasury shares or deal with
the shares. If it holds them, it shall enter itself in its register of members/shareholders.
Notably, section 527 limits the amount of shares that a company may hold as treasury shares to not
more than 10% of the nominal value of the shares or class of shares. Besides, the company cannot
exercise any right in respect of the treasury shares, including any right to attend or vote at company
meetings.

Takeovers
Section 584 prescribes that an offer to purchase shares in a company is a takeover if these conditions
are satisfied, viz;
a. It is an offer to acquire all the shares in a company or, if there is more than one class of shares,
all the shares of one or more classes; and
b. The terms of the offer are the same for all shares or classes of shares in the offer.
The Act then goes ahead to give elaborate rules concerning treatment of shares in takeovers,
including rules on communication to members and effect of non-communication to certain members.

Accounting and financial records

Part XXV of the Act has provisions on financial reporting and record keeping by companies. For that
purpose, the Act divides companies into two main distinctions;
a. Unquoted and quoted companies, with slightly more stringent accounting and financial
record keeping with regard to the latter. For instance, the annual financial statement of a
quoted company is required to include the auditable part of the directors’ remuneration
report.
b. Companies subject to the small companies regime and companies that are not subject to that
regime. That regime applies to companies that qualify as small and that are not excluded from
the regime. The qualifying conditions are a turnover of not more than Kshs. 50,000,000; net
assets of not more than Kshs. 20,000,000; and not have more than fifty employees. Most
notably, this regime does not apply to (a) public companies; (b) listed companies; and (c)
companies carrying on insurance market or banking activity.

Company’s individual financial statement

Section 635 requires the directors of every company to prepare a financial statement for the company
for each financial year of the company failure to which each of the directors in default commits an
offence and on conviction is liable to a fine not exceeding Kshs. 1,000,000. If after conviction they
continue in default, they commit a further offence on each day of default and on conviction is liable to
a fine not exceeding Kshs. 100,000 for each such offence.

Besides, section 650 requires that the directors of a company shall include in the notes to the
company’s individual financial statement details of all benefits that they have received during the
relevant financial year of the company. This is however not applicable where the company is a ‘small
company.’

In a bid to modernize financial reporting and record keeping, the Act provides that quoted company
shall ensure that its annual financial statement and directors’ report is made available, free of charge,
on a website maintained by or on behalf of the company and remains so available until the annual
financial statement for the next financial year of the company is made available. Non-compliance
makes both the company and its officers liable to an offence punishable by a fine of Kshs. 500,000.
In general, one notes that the Act makes comprehensive provisions on financial reporting by
companies. The provisions prescribe particularly strict rules with regard to public companies, quoted
companies and generally companies not subject to the small companies regime.

The Act also has elaborate rules on auditing of company accounts, with particularly more stringent
rules with regard to public companies and quoted companies.

Arguably, the Companies Act No. 17 of 2015 modernizes Company Law in Kenya. It makes immense
changes to the current law and is no doubt a culmination of many years of attempts to reform
company law in Kenya. While the Act is bulky and by all standards fairly lengthy, it uses clears,
simple and modern English meant to be understood by a reader of any reasonable level of learning.
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