Sweeping changes now allow one-person limited companies

President Uhuru Kenyatta signs Business Bills at State House, Nairobi. Looking on are Industrialisation Cabinet Secretary Adan Mohamed (right) and National Assembly Speaker Justin Muturi. [PHOTO: PSCU

Kenya has passed new legislation paving the way for a one-person company, in sweeping changes that will enhance the ease of doing business.

The repealed law has done away with a statutory need of a company secretary for firms with capital of up to Sh5 million. President Uhuru Kenyatta yesterday signed into law the Companies Bill whose articles eliminate the need of more than one person to form a limited company, while doing away with the compulsory annual general meeting for small firms.

“We have effectively removed the bureaucratic red-tape in doing business (through these laws) and we have now facilitated you to help us create jobs for our people,” Mr Kenyatta told representatives of the private sector alliance (KEPSA) at State House, after assenting to the new legislation.

The Companies’ Act has been in place since 1948 while its articles have been cited as a major stumbling block to doing business. “This law has been pending for a long time and was not cognisant of the present day circumstances,” he added. A minimum of two people were required to form a private company, while a public company could only be formed by seven or more individuals.

Starting yesterday, the new legislation opened the way to 100 per cent share ownership to a registered company and that any individual could walk to the companies registry and have their firm registered on the same day. Individual ownership for registered companies would greatly reduce the complexity of the articles of association, which have almost always necessitated the involvement of a lawyer in formation and operations.

The articles of association typically define the purpose of the company as well as outlining the duties and responsibilities of its members or directors. Often, the company lawyer is the company secretary whose involvement and the associated costs have been effectively eliminated. The new Companies Act is among the five pieces of legislation that were effected at the mid-morning meeting at State House, yesterday.

Mr Kenyatta also assented to the Insolvency Bill, the Special Economic Zones Bill, the Business Registration Service Bill and the Finance Bill. The four pieces of legislation, except the Finance Bill which is an annual law approving government expenditure over the financial year, were drafted to enhance the ease of doing business.

The President also warned top officials against excuses on the country’s poor rankings on business-friendliness. He said there should be no excuses on the difficulties experienced by potential investors. “I do not want to hear those long stories and excuses on why we can’t be competitive with these new laws.”

Kepsa Chairman Dennis Awori said the Insolvency Act now presents a second chance to life for struggling firms that have been threatened with receivership. “Through this law, insolvency does not mean the graveyard but a second chance,” Mr Awori said in his presentation. Companies that have been threatened with dissolution can now ask for protection from the courts, to allow them time to re-organise their operations and possibly pay off their debts over a structured period of time.

Could be surcharged

Prior to the legislation, any creditor could move to court to seek winding up orders but the new law significantly raises such threshold. Members of any professional bodies such as engineers and doctors, are now recognised as receiver managers, expanding the interpretation to more the narrow definition of audit firms.

A majority of firms that have been placed under receivership have ended up in liquidation. Industrialisation Cabinet Secretary Adan Mohamed says the new law on insolvency closely mirrored the US law on firms facing winding-up threats. Under the Chapter 11 of the US Company laws, a corporation that is facing financial strain and unable to pay debts in time would often propose a plan of reorganisation to keep its business alive and pay creditors over time.

Companies can also seek relief from having their assets attached as they struggle through the turnaround. Mr Mohamed said the new laws place a bigger responsibility and full accountability of the operations of companies on the directors, suggesting that they could be surcharged and their property attached for negligence in their roles in the case of losses.

Directors of public firms are also liable to penalties, while companies have now been allowed to buy their own shares