30 per cent rule in new Companies Act an error, admits Industrialisation CS

The controversial clause in the new Companies Act, 2015 which requires foreign companies to cede 30 per cent stake to Kenyan citizens by birth was an "error" that has since been rectified, said Industrialisation Cabinet Secretary Adan Mohamed.

Mr Mohamed noted that the clause, which never featured when the Act was first introduced to Parliament seven years ago, must have been sneaked into the law at some point in the committee stage. He insisted the clause did not represent the Government policy and will be suspended.

Section 975(2b) of the Act requires that for a foreign company to be registered, it must demonstrate that at least 30 per cent of the company's shareholding is held by Kenyan citizens by birth. Failure to comply with this provision carries a fine of Sh5 million.

While foreigners can retain a hundred per cent shareholding of their companies by incorporating their firms locally as subsidiaries, they can easily set up a local branch if they are not very keen on trading in the country.

For example, if all that a foreign company wants to do in the country is marketing, it can simply set up a branch whose registration process is not as stringent as setting up a subsidiary.

"All those foreign companies that were a bit uneasy can now rest easy," said Mr Mohamed, noting that the implementation of the provision would be suspended for six months pending parliamentary amendments.

Deputy President William Ruto has since added his voice to the debate. He said: "We will ask the Legislature to make some insertions on the regulations so as to create balance between price, quality and value." In reaction to an exclusive report we carried in Business Beat, a pull-out in of The Standard.

Mr Dominic Rebelo, a partner at Anjarwalla & Khanna noted that the controversial changes may have been sneaked in. He explained that while the 30 per cent requirement was impractical, it was not unconstitutional. "It (the Act) is probably constitutional since you are not removing a right that was already there," he said.

Gad Ouma, a civil litigation lawyer at Robson Harris dismissed the idea that foreigners might lay claim to their constitutional rights. They could only invoke the Constitution once they had been incorporated locally since the Bbill of Rights only applies to Kenyan citizens.

Mr Ouma also dismissed the idea that since Kenya has ratified a number of international human rights conventions, foreigners might lay claim to them to argue their case. Mr Ouma argued that such conventions are subservient to the Constitution.

However, Andrew Franklin, an American investor in Kenya and security advisor questioned the honesty of the Government to keep their word, especially since the Government can only delay the implementation of the clause as it awaits amendment from Parliament.

Mr Mohamed noted that besides the clause, the Act that has overhauled a 70 year old Companies Act, introduces a lot of benefits that will add to the ease of doing business in the country. For example, the new Act makes it possible for one to register a company with one shareholder which is a boon to entrepreneurship.

Moreover, the Act spells out clear roles and responsibilities for directors, which is a boost to corporate governance efforts.

Source: The Standard