New Rules for Intellectual Property Business as Companies Bill 2015 Signed into Law

This week President Kenyatta (pictured above) signed into law the Companies Bill 2015 that does away with the Companies Act Chapter 486 of the Laws of Kenya which is an archaic piece of legislation dating back to 1948. The new Companies Act is aimed at revolutionising business in the country by removing various pre-existing legislative stumbling blocks to doing business in Kenya. From an intellectual property (IP) perspective, the new Act has several important provisions that will affect how IP assets are managed by various business entities.

With over 1,000 sections, the new Act is incredibly detailed (bulky) and comprehensive. It codifies common law principles – in particular, the indoor management rule and common law fiduciary duties of directors. Along with this, it modernises company law by recognising electronic communication and the use of websites and other electronic avenues for a company’s communications. The new Act has also increased the penalties and fines for offences relating to companies. This blogpost will highlight some of the major changes in the new Companies Act.

These highlights include:

1. A person can now form a private company as the sole member. One (1) or more persons may form a company for any lawful purpose. Previously, at least two persons were required to form a company.

2. A private company will not require a Company Secretary; unless its paid up capital is/exceeds KES 5,000,000.

3. The restricted objects approach vis-a-vis a company’s objects has been scrapped therefore a company will have the capacity to undertake all legal transactions, subject only to its own limitations.

4. A company may make its public announcements and send notices to shareholders through its website.

5. Fiduciary duties of directors, previously derived from common law, are now provided in the Act eg. duty not to accept benefits from third parties; duty to act within powers; duty to exercise independent judgment; duty to exercise reasonable care, skill and diligence and the duty to avoid conflicts of interest.

6. Model articles of association will be prescribed for companies in various sectors.

7. Private company members may pass resolutions either at meetings OR as written resolutions to be sent in hard copy or electronic form.

8. Shareholders’ approval will be required for directors’ fixed term service contracts in excess of two (2) years.

9. Private companies are now required to file financial statements with the Registrar of Companies within 9 months of the accounting period.

10. The minimum age of a director is reduced from 21 years to 18 years.

11. The maximum age of a director, previously set at 70 years, is not prescribed.

12. A document is validly executed if signed on behalf of the company by 1 director in the presence of a witness who attests the signature.

13. A private company and a public company must have at least 1 and 2 directors, respectively. At least 1 director must be a natural person. A sole member company qualifies as a natural person for purposes of directorship.

14. The Company has a duty to notify the Registrar of changes in directorship or directors’ addresses within 14 days after the change.

15. A resolution is required where the company intends to acquire from or transfer to a director a substantial non-cash asset.

16. A substantial non-cash asset in one whose value exceeds 10% of the company’s assets and is more that KES 5M or one that exceeds KES 10M.

17. A resolution may now be passed as a written resolution.

18. A Disqualification Order may be issued against a director/company secretary upon an application by the AG or the Official Receiver. The order is issued if the person is unfit to manage the company or it becomes insolvent during or subsequent to the person’s tenure. The order may only be imposed for a period of not less than 2 years and not more that 15 years. The application for an order, unless with leave of court, may only be made within 2 years after the relevant event.

19. The AG may accept a disqualification undertaking that the person will not hold a director/secretary position for a period of time. The AG will be guided by public interest, and the disqualification period shall not be less than 2 years or more than 15 years.

20. A Register of disqualification orders and undertakings shall be maintained. It shall be open for inspection by public.

21. A company shall file a copy of a resolution/agreement/written memorandum affecting its constitution within 14 days after it is passed.

22. Private companies are now required to file financial statements within 9 months after their accounting period.

23. Every company is required to make returns annually not later than the company’s return date. The return date is the anniversary of the company’s incorporation; or the last return date where lodged up to a different date.

24. A small company with a turnover of not more than 720 million shillings and net assets in its balance sheet of not more than 360 million is exempt from ensuring that its financial statements are audited in accordance with the Act.

Generally speaking, start-ups falling under the ‘small company’ regime appear to be the biggest gainers under this new Act as they will be able to easily set-up shop, identify, protect and commercialise their IP assets within fairly wide monetary thresholds paving the way for growth. For all companies, the regulatory requirements under the new Act appear to be aimed at enhancing transparency, accountability and good corporate governance. For instance, collecting societies which are registered under the Act as companies limited by guarantee will now be required to file financial statements with the Registrar of Companies whereas its directors are now subject to closer scrutiny in line with their fiduciary duties at the risk of disqualification.