The Government of Kenya has abolished the recent Companies Act requirement for 30% local shareholding in respect of foreign companies. We discuss the background below.
The Companies Act No. 17 of 2015 brought a raft of changes in the formation, ownership, management, operation and liquidation of companies in Kenya.
Among many changes introduced by the Companies Act was the requirement that foreign companies should have at least 30% shares held by the local Kenyans by birth. Section 975(2)(b) of the Companies Act, 2015 stated:
The Registrar shall approve the application for registration and register the company by entering its name and other particulars in the Foreign Companies Register, if the application demonstrates that at least thirty percent of the company’s shareholding is held by Kenyan citizens by birth.
This provision resulted to debate in the business arena and its objective towards foreign investment greatly questioned. It was seen as being intended to provide disincentive to foreign investment.
Before the provision was operationalized, there was too much heated debate among business people and government and wide consultation among government departments. The Attorney General suspended its operation for a period of six months pending further consultations with relevant stakeholders and no foreign company was ever subjected to that requirement in fact and in practice.
After consultation, the Government introduced a Bill in the Parliament which was passed into law through the Finance Act, 2016 which makes various changes on different laws.
Section 85 of the Finance Act, 2016 amends the Companies Act, 2015 by deleting section 975(2)(b) which provided for the requirement of 30% shares of foreign company to be owned by local Kenyans by birth. It provides thus:
Section 975 of the Companies Act is amended in subsection (2) by deleting paragraph (b).
Section 1 of the Finance Act, 2016 provides that the commencement date of this provision is January 1, 2017. Nevertheless, the current position is that foreign companies are not required to have 30% local shareholders. This clarification has restored confidence on Kenya as an investment destination amongst foreign direct investors.
The deletion of section 975(2)(b) has effectively restored the previous position where there was no requirement of local shareholding in the foreign company registered in Kenya. The link to the new law is http://kenyalaw.org/kl/fileadmin/pdfdownloads/AmendmentActs/2016/FinanceAct_No38of2016