LEGAL ALERT: New Beneficial Ownership Requirements for Companies, LLPs and Foreign Companies

1. Introduction

?The Government of Kenya has recently signed the Anti-Money Laundering and Combating of Terrorism Financing Laws (Amendment) Bill, 2023 into law. The new law provides for increased transparency on the beneficial ownership (“BO”) information for companies and introduces the requirement to maintain the BO information by Limited Liability Partnerships (“LLPs”) and Foreign Companies. This update also enhances certain provisions for companies. This alert provides a brief overview of the major changes for companies and LLPs.

2. Key Changes

a. Enhanced Provisions for Companies

- Increased Transparency: The Section of the Companies Act providing for disclosure of BO information has been redrafted to provide more detailed information about companies beneficial owners, reporting structure and control mechanisms.

- Compliance Cut-off – The Act now sets a cut-off of 60 days from the provision coming into force for all existing registered companies to fully comply with the filing requirements for BO information.

- The Company is required to maintain a Register of Nominee Directors and to disclose Nominee Shareholders.

- Private Companies with a share capital less than KES 5 million and Companies Limited by Guarantee have now the option to appoint either a Company Secretary or a Local Contact Person. All companies earlier registered without a Company Secretary have 60 days to comply with this requirement. The Company Secretary or the Contact Person, as the case may be, have the administrative duty to make the required notifications with the Registrar.

- Regular Updates: Companies must regularly update their records on beneficial ownership. Not filing the BO particulars of a Company following a directive by the Registrar is now a basis for the Registrar to strike-off your Company.

- Penalties: - Non-disclosure or providing misleading information will attract significant penalties. There is now an administrative penalty for late filing of KES 2,000 by the Company and each of its Officers (Directors and Company Secretary).

b. Beneficial Ownership in LLPs

- Definition: The law now defines beneficial ownership in the context of LLPs, highlighting the percentage ownership, voting rights, and other significant control factors.

- Disclosure Requirements: All LLPs are now required to disclose their beneficial owners, including changes in ownership and to file an Annual Return with the Registrar confirming, among other things, that the BO particulars are up to date.

- Authorised Persons: The LLP Act now provides for the appointment of Authorised Persons for purposes of attending to ongoing compliance requirements with the Registrar.

- The LLP is required to maintain a Register of Nominee Partners.

- Other Changes – The LLP can now be struck off on application by the Manager(s) or a majority of the Partners.

- Penalties: Non-disclosure or providing misleading information will attract significant penalties. There is now an administrative penalty for late filing of KES 2,000 by the LLP and each of its Managers.

c. Beneficial Ownership in Foreign Companies

- Definition: The provisions for BO reporting for local companies now also apply to Foreign Companies registered in Kenya. This is irrespective of whether that Foreign Company is maintaining BO Information in its country of incorporation. The import of this is that going forward, foreign companies will be required to disclose their shareholders, which has not been the case in the past.

- Compliance Cut-off – The sets a cut-off of 60 days from the provision coming into force for all existing Foreign Companies to file their BO information.

- Reporting Mechanism: Foreign companies operating within the jurisdiction are required to regularly report their beneficial owners and any changes therein.

- Penalties: Non-disclosure or providing misleading information will attract significant penalties. There is an administrative penalty for late filing of KES 2,000 by the Local Representative.

- Due Diligence: Enhanced due diligence measures are expected to be introduced through subsidiary regulations to ensure that foreign companies comply with the new requirements.

3. Implications for Businesses

- Compliance: All Companies, LLPs and Foreign Companies must ensure they are in compliance with the new legal provisions.

- Due Diligence: Affected businesses must establish robust systems to identify, verify, and update beneficial ownership information.

- Awareness: Affected businesses should be aware of the penalties associated with non-compliance and ensure that all stakeholders are informed of the new requirements.

4. Recommended Actions

- Review Current Structures: Affected businesses should review their current ownership and control structures to ensure compliance with the new definitions of beneficial ownership.

- Update Records: Where necessary, affected businesses should update their beneficial ownership records and Registers of Nominees.

- Seek Professional Assistance: Companies uncertain about their obligations under the new law should seek professional assistance by a corporate governance expert (You can talk to us if on this area, if need be).

5. Conclusion

The new regulations on beneficial ownership aim to increase transparency, combat illicit activities, and ensure that entities operating within the jurisdiction are accountable. Companies should be proactive in ensuring compliance to avoid penalties.