Overview of the Companies Act New Compliance Requirements.

Transcription

1 Overview of the Companies Act New Compliance Requirements. October 2015

2 Section A; Company Formation & Constitutions

3 Section A Part II to VI Section A comprises of the following sections:- Part II Company Formation Part III A Company s Constitution Part IV Capacity of a Company Part V Name of Company Part VI Alteration of Status of Companies 3

4 Section A Part Highlight. Company Formation The procedure remainsthe same however, the new Act requires the Certificate of Incorporation for PublicCompanies to indicate the form of the company registered i.e.must show the words PLC. A Company s Constitution OneShareholder and Director companies now allowed. Model articles shall be availed that may be adopted by different descriptions of Companies. Objects of the Company shall be unrestricted unless restricted by the articles of a company. The Act gives members a right to receive upon request all the constitutional documents of the company including any resolutions and statements made in that respect. 4

5 Section A Part Capacity of a Company & Execution Highlight The power of the directors to bind the company, or authorise others to do so, is free of any limitation contained in the company's constitution. The manner of execution of documents under common seal has been mendedto allow one Director or an Authorised signatory to sign with or withoutsealing. 5

6 Section A Implications to Business The Incorporation process has been simplified through the provision of model articles and the removal of the requirement of Memoranda of Association that made incorporation difficult.this will encourage the opening of start-ups and family companies. The Act seeks to protect the Public and third parties in its dealings with a Company (especially fraudulent / misleading companies) by ensuring that information about a Company is readily available. 6

7 Section B; Key Stakeholders and Internal Regulations.

8 Section B Part VII to XXVI and XXXVI Section B comprises of the following Parts:- Part VII Company Members Part VIII Company Directors Part XII Company Secretaries Part XII (division 3) Resolutions and Meetings Part XIII -General Meetings Part XXVI -Companies to make Annual Returns to Registrar Part XXXIII Dissolution and restoration to the Register 8

9 Section B Part Highlight Company Members Company can be registered as a member of its own register. Copies of the register of members mustbe filed with the Registrar within 14 days every time the register is updated. ACompany may expunge from the register of members an entry relating to a former member on expiry of 10 years after cessation of membership. The Act allows non-members to inspect the register of members at a fee to be prescribed in the regulations. Company Directors At least 1 director in any company should be a natural person. Minimum age fora Director reduced from 21 to 18. Maximum age is not stipulated. 9

10 Section B Part Company Directors (Cont.) Highlight Maintenance of a register of directors, which should be open to inspection by third parties. The register shouldcontain a Directors residential address. Notification of appointment ofa Director should be accompanied by a Director s written acceptance. Declaration of interest, anddisclosures (long term service contract,acquisition of a substantial non-cash asset by a directoror by the company from a director, issuance of loans to directors andother credit transactions require to be disclosed). Certain declarations should be made to members. 10

11 Majority of the provisions relating to Directors that were previously matters of good corporate governance are now being made a Compliance Matter as opposed to merely a Best Practice issue. 11

12 A director should carry on his duties while having regard to:- the long term consequences of any decision of the directors; the interests of the employees of the company; the need to foster the company's business relationships with suppliers, customers and others; the impactof the operations of the company on the community and the environment; to maintain a reputation for high standards of business conduct; 12

13 Second Schedule: Matters defining unfitness of Directors and Secretaries to the Company. The Act gives the court powers to make disqualification orders against certain persons from acting as Directors and / or Company Secretaries of a Company. The disqualification order is made once a person is considered to be unfit to hold such positions. The following matters that define unfitness of Directors and Secretaries to the Company:- 1. Any breach of any fiduciary duty or other duty by the Director or Secretary; 2. Any misapplication or improper retention of money or any conduct giving rise to an obligation to account for money or other property; 3. The extent of the director s responsibility for the company entering into any debt avoidance transaction that is liable to be set aside under a provision of the law of insolvency; 4. The extent of the responsibility of the director or secretary for any failure by the Company to comply with the following provisions: 13

14 Second Schedule: Matters defining unfitness of Directors and Secretaries to the Company. Maintenance of the Register of Members -the company and each officer of the company will be liable to a fine not exceeding five hundred thousand shillings for failure to comply with the provision necessitating maintenance of a Register of Members and on each day which the failure continues and will be liable to a fine not exceeding fifty thousand shillings. Maintenance of the Register of Members at the Registered Office -the company and each officer of the company will be liable to a fine not exceeding five hundred thousand shillingsfor failure to comply with the provision necessitating maintenance of a Register of Members of the Registered Office as required under Section 94 of the Act. Company to keep Register of Directors -the company and each officer of the company will be liable to a fine not exceeding one million shillingsfor failure to comply with this provision as required under Section134 of the Act and each day which the failure continues and will be liable to a fine not exceeding one hundred thousand shillings. 14

15 Second Schedule: Matters defining unfitness of Directors and Secretaries to the Company. Duty of Public Company to keep Register of secretaries the company and each officer of the company will be liable to a fine not exceeding five hundred thousand shillings and on each day which the failure continues and will be liable to a fine not exceeding fifty thousand shillings. Duty of Company to keep proper Accounting Records -the company and each officer of the company will be liable to a fine not exceeding two million shillingsin the case of a body corporate and a fine not exceeding one million shillings or to imprisonment for a term not exceeding two yearsin the case of a natural person for failure to comply. Duration and location of accounting records The Company shall keep its accounting records at its registered office and preserve the records for not less than seven years from and including the date on which they were created. The company and each officer of the company will be liable to a fine not exceeding two million shillingsin the case of a body corporate and a fine not exceeding one million shillings or to imprisonment for a term not exceeding two yearsin the case of a natural person for failure to comply. 15

16 Section B Part Company Directors (cont.) Company Secretaries Highlight The Act recognises the Directors indemnification and protection of their personal information by the company. Minutes of directors meetings should be kept for a period of at least 10 years. A private company is required to have a company secretary if itspaid up capital is Kshs 5 million ormore. Public Companies must engage a Company Secretary. The register of secretaries should contain information on the legal form of the Company as Company Secretary. (The Second Schedule of the Companies Act goes further to define matters defining unfitness of Directors and Secretaries to the Company.) 16

17 Section B Part Resolutions and meetings Highlight Under the new Act, Private Companies can pass circular resolutions exceptthose relating to the removal of a director or auditor before expiry of their terms. Theimportance of technology is recognisedand therefore the Act allows for electronic circulation of notices or by means of a website. Every public company should hold a general meeting within six months of its financial year end. Results of a members meeting should be made available on the website of the Company. Members resolutions and minutes should be kept for a minimum period of 10 years. 17

18 Section B Part Company to make Annual Returns to Registrar Highlight Every company is required submit to the Registrar of companies successive annual returns on the return date. In addition to the details contained in the current annual return a company shall also ensure that following information is included:- the information relating to the type of company; and its principal business activities. 18

19 Section B Implications for Business Operational website are necessary to enable a company meet the publication requirements of the Act. ICT services should be embraced. Digital communication -Distribution costs on corporate communications reduced KYC / due diligence procedures enabled in line with Anti Money Laundering (AML) Procedures. Good corporate governance encouraged -Directors fiduciary duties now outlined in detail. Disclosure of potential Interests by Directors will increase transparency and protection of public assets. 19

20 Section B Implications for Business Custodial period of Company records has been clarified, defining the liability of a Company in as far as maintaining records is concerned. Exemption from having Company Secretaries may expose the Directors to penalties due to non-compliance. Not all Directors possess the requisite secretarial skills. Role of Directors and Company Secretaries has been given preeminence and will be held liable for non-compliance with penalties including fines and jail terms. Ceremonial Directorships should be re-evaluated and individuals need to carefully consider their appointment to the position of a Director. The Act allows for firms to be recognized as the Legal Secretaries to public companies as opposed to individuals. 20

21 Section B Implications for Business Further to the rigorous process required in disengage Directors, Companies are to ensure proper engagement of Director s and Auditors. It is envisaged that there will be increased uptake of dispute resolution mechanisms towards consensus building prior to initiating any disengagement. Annual Returns will be amended to provide for more disclosure. 21

22 Section C; Capital Structure and Reorganizations.

23 Section C Part XIV to XXIV and XXXV Section C comprises of the following Parts:- Part XIV Share Capital of a Company Part XV Reorganization of Companies Part XVI Acquisition by a Company of its own shares. Part XVIII Certification and Transfer of Securities Part XIX Public Offers of Securities by Companies Part XXI -Treasury Shares Part XXII - Information about Interests in a Public Company's Shares Part XXIII - Company Debentures Part XXIV - Company Takeovers Part XXXV Mergers and Divisions of Public Companies 23

24 Section C Part Share Capital of a Company. Highlight A public Company is prohibited from issuingshares in kind unless the consideration is valued and a valuation report issued. The share premium account can be considered during share capital reductions. The minimum authorized share capital of a public Company is Kshs 6,750,000/-. 24

25 Section C Part Acquisition by a Company of its own Shares Highlight A limited company can acquire its own fully paid shares for valuable consideration, following (a) reduction of share capital or (b) on forfeiture of shares by a shareholder. A private Company may make a redemption or purchase its own shares out of capital subject to the prescribed conditions. Payments out of capital is subject to Shareholders approval and subsequent gazettment in a Gazette notice. Any dividend payable for company acquired shares shall form part of the reserve account. 25

26 Section C Part Certification and Transfer of Securities Public Offers of Securities By Companies Highlight The Act has introduced instances where a transfer of shares shall be deemed effective without issuance of a share certificate either by operation of law or court order and companies are encouraged to make regulations adopting such arrangements. The Act together with the CMA Act will regulate offer of securities to the public by companies. If a private company can only offer shares to the public after converting into a public company.the officers in contravention of this may be ordered to purchase the respective shares from the public at a price and terms determined by the court. 26

27 Section C Part Treasury Shares Highlight The Act permits acquisition of treasury shares as long as the purchase or acquisition is made out of distributable profits and that the shares are qualifying shares. The treasury shareshave no right to attend or vote at company meetings but are eligible for dividends. The proceeds of the sale of treasury shares is realized as company profits. Where the proceeds exceed the purchase price, the additional amount is transferred to the share premium account. 27

28 Section C Part Information about Interests in a Public Company s Shares. Company Debentures. Highlight A public company may give notice to any of its members to provide information about their present or past interest in the company's shares at any time in the previous three years. The new Act requires that a company registers an allotment of debentures whether redeemable or irredeemable as soon as practicable, and in any event within two months, after the date of the allotment. 28

29 Section C Part Highlight Company Takeovers. The new act recognises debentures holders and holders of convertible securities in the same way as shareholders during a takeover. The Act gives the CMA rights to make takeover rules. Mergers and Divisions of Public Companies. Division of companies isnow permissible under the new act. 29

30 Section C Implications on Business A Company s share premium account can be used in various ways e.g. bonus shares and can be considered in the reduction of a Company s share capital. This allows for Companies to restructure their Balance Sheet s as is desirable. Treasury shares to be used in creating Employee Share Ownership Plans (ESOPs) is a good addition. Certificates will no longer be prima facie evidence of ownership of shares in a Company. Redefines a public Company. The act creates a clear reference frame for mergers and takeovers with a clear mandate to the CMA. 30

31 Section D; Members Protections

32 Section D Part XXIX and XI Section D comprises of:- Part XXIX that contains the Provisions with respect to the Protection of Members against Oppressive Conduct and Unfair Prejudice. Part XI Derivative Actions 32

33 Section D Part Protection of Members against Oppressive Conduct and Unfair Prejudice Highlight Members may apply to court for protection orders if they feel oppressed and unfairly prejudiced by the way the affairs of the company are conducted. Member may now initiate proceedings in the name of the Company without a directors resolution first being obtained. Derivative Actions Members may institute claims for any action arising from an actual / proposed act or omission involving negligence, default, and breach of duty/trust by a director or any other person against the Company. (Derivative claims can only be instituted with the permission of the court.) 33

34 Section D Implications on Business The Act provides for legal avenues for members of a Company to access justice without the limiting requirement to go through Directors. Accountability and transparency should be enhanced to guard against frivolous actions being instituted by members. 34

35 Section E; Registrar of Companies.

36 Section E Part XXXI and XXXII Section E comprises of the following Parts:- Part XXXI Registrar of Companies and Registration of Company Document; and Part XXXII Company Charges 36

37 Section E Part Registrar of Companies and Registration of Company Documents Highlight The new Act introduce some level of efficiency in the management of records. Company Charges The Actgives recognisionto charges registered outside Kenya. 37

38 Section E Implications on Business Efficiency of the companies registry will be enhanced to ease filing and retrieval of records. Commencement of a consolidated fund will result in diligence in collection of filing fees, fines and penalties and the process will be subjected to annual Audits. 38

39 Section F; Foreign Companies.

40 Section F Part XXXVI to XXXIX Section F comprises of the following Parts:- Part XXXVI Companies not formed under this Act. Part XXXVII Foreign Companies. Part XXXVIII Legal Proceedings. Part XXXIX Company Records. 40

41 Section F Part Companies not formed under this Act. Foreign Companies Highlights Dual registrations enabled. The Act prohibits a foreign Company from carrying on business in Kenya unless it is registered. Foreign companies will no longer be allowed to continue guaranteeing debenture issues unless they set up a place of business in Kenya. A foreign company can be registered under an alternative name other than that of its corporate name. To qualify for registration, at least 30%of the foreign company s shareholding should held by a Kenyan citizen by birth. 41

42 Section F Part Foreign Companies (cont.) Highlights The authorised representative may be held personally liable for contraventions of the Act where a court of law so determines. The new Act contains comprehensive provisions with respect to operations of foreign companies. Legal Proceedings Explains what amounts to a default. Company Records Electronic mentainance of records allowed in the Act. 42

43 Section F Implications on Business 30% Kenyan shareholding requirement will encourage the setting up of subsidiaries as opposed to branches of foreign companies. The requirement for foreign companies to file Financial Statements will promote transparency and support AML laws for foreign owned entities. The role and responsibilities of Authorized representatives of branches has been clearly defined in the new Act with penalties arising from nonconformance. The provisions with respect to legal proceedings will improve oversight over Company operations towards business sustainability. 43

44 Section G; Financial Reporting

45 Section G Part XVII and XXV to XVI Section A comprises of the following sections:- Part XXV Company Accounting Records and Financial Statements Part XXVI Auditing of Company Financial Statements Part XXVII Statutory Auditors Part XVI Distribution of Company Assets 45

46 Conclusion Savings & Transitional Provisions

47 Tea Break