Beneficial Ownership Rule Kenya 2024

Beneficial Ownership rule Kenya

The requirement of Beneficial Ownership originated from the recommendations of the Financial Action Task Force (FATF) on International Standards on Combating Money Laundering and the Financing of Terrorism and Proliferation. Countries were urged to implement the recommendations in order to combat money laundering and terrorist financing, as well as the financing of proliferations of weapons of mass destruction. Consequently, the timely filing of beneficial ownership information is meant as a measure to control legal persons. In the recommendations, an inter-agency framework to promote domestic co-operation, co-ordination and information exchange is established.

Definition of Beneficial Ownership

A beneficial owner basically denotes a person either natural or legal person who holds shares and has sufficient control in a company. A natural person is a human being who is either a member or a director of a company and who holds shares in the company. While a legal person is an incorporated entity which itself is a shareholder in that other company. It is expected that all shares in a company are allocated to the person(s); legal or natural, recorded in the register of members as at the date of incorporation or after subsequent changes of shareholding are made. Beneficial ownership of a shareholder is calculated as a percentage of shares they hold out of the entire nominal share capital of a company.

Elements of Beneficial Ownership in Kenya disclosure requirements

In determining who a beneficial owner is, regard is taken not only to the shares they hold but also to the control they exercises over a legal person. Holding shares comes along with power to control, direct and influence transactions in a company which altogether qualifies one a beneficial owner. It is noteworthy that decisions in a company are usually made by those who hold shares be they members or directors. In other circumstances, contractual arrangements may be made and a person can contractually be approved control rights without having any ownership or control rights.

In the case of being in control, a thorough analysis of the control rights to parties to an agreement at an offshore level, it will be essential to put into consideration the control rights under a shareholders agreement to institute if the controllers will need to be disclosed

Legislation and companies (beneficial ownership information) regulations, 2023 Kenya

The requirement to declare beneficial ownership in Kenya was pioneered by the enactment of the Companies Act No. 17 of 2015 whereby Section 93 of the former Companies Act (Cap 486) was amended in 2017 to include the requirement for disclosure of the beneficial ownership. This requirement was not provided for by the previous regime (Cap 486) and hence there was no requirement for a beneficial ownership register.

The Statute Law (Miscellaneous Amendments) Act No. 12 of 2019 clarified that every company incorporated or registered in Kenya will be required to keep two separate registers: (i) a register of members; and (ii) a register of beneficial owners. The two registers must be filed with the Registrar of Companies upon any change in legal or beneficial ownership of a company’s shares.

It is now a requirement of law that all companies registered in Kenya must update the beneficial ownership of their shareholding. This i popularly known as beneficial ownership rule in Kenya act

Penalty for non-compliance

Failure to comply with beneficial ownership updating requirement is an offence under the Company’s Act that attracts a penalty of up to Kshs. 500,000 on each officer who is liable and for subsequent default. The fine tells that the Registrar of Companies does not take it easily failure to comply with this statutory requirement.

It is worth noting that an officer in a company for purposes of beneficial ownership means any person who holds share(s), that is, a director shareholder or a member. Ownership of share(s)Share Registration is the key qualifier however control becomes another factor to consider especially in a case where control is exercised at an offshore level under an agreement, for instance, in the case of a nominee or a local representative.

Objective

The introduction of the concept of beneficial ownership flows from the international concern geared towards combating money laundering, terrorist financing, as well as the financing of proliferations of weapons of mass destruction.

Further, it promotes transparency and accountability in company management and for proper tax administration

Timelines for compliance

The Business Registration Services (BRS) Kenya, has granted all companies registered in Kenya a final extension up to 31^st July, 2021 to comply with filing their respective Beneficial Ownership Registers in accordance with the Companies (Beneficial Ownership Information) Regulations, 2020 for compliance and to avoid the hefty penalties for the non-compliance offense.

Company officers including company secretaries will required taking swift action to ensure compliance before the due date above stated.

How to update beneficial owners of a company

By the introduction of beneficial ownership, companies will need to urgently restructure and regularize their shareholding. Strict adherence to their objectives will be inevitable in such a time when the world is grappling with multifaceted security issues. Funding of companies and other registered organizations is now subject to disclosure to authorities so as to avert the vices that companies may engage in.

Again and especially in Kenya, all companies including those that have been inactive for long time will require to be updated in Beneficial Ownership e-Register Kenya to speed up compliance before they are caught up by time.

Briantony International Consultants contacts are telephone +254114503453 or

Email: legal1@companyregistrationkenya.com