Nearly half of registered private companies in Kenya risk delisting and asset freeze for failing to disclose the names, phone numbers and residential addresses of owners who own more than 10 percent stakes through secret accounts.
Only 405,329 of the 801,027 firms have revealed the identities of the secret shareholders to the Attorney-General, through the Business Registration Service (BRS), in line with a 2020 law.
The BRS has issued a 30-day notice to the remaining 395,698 or 49.3 percent of the companies to comply with the beneficial ownership disclosure requirement or get delisted on September 11.
The companies registrar says assets belonging to the delisted companies will be frozen, limiting the ability of persons associated with the firms to transact in cash and properties.
The details required for filing include the names of the substantial shareholder, KRA PIN, national ID or passport copies, postal address, residential address, occupation, telephone number and the date when the investor became a beneficial owner.
Most high net worth shareholders at the NSE hold shares through nominee accounts, with the list of top 10 shareholders in a majority of blue chip firms dominated by anonymous investors.
Owners of delisted firms, for instance, will not be able to access or transfer cash in banks for lack of proof of ownership of the delisted firms.
The Registrar of Companies says the firm would need to resurrect the firm and ultimately disclose the secret owners, before tapping the frozen firms.
Delisted firms that own assets like land, homes, office blocks and cars would also be restricted from transferring the properties to third parties while having access for use.
Persons seeking to bring back dissolved companies to life would be required to obtain approval from the Attorney General or seek a court order.
A company is like a person and takes on a life of its own. Once it’s struck out of the registry, you can no longer do any business using its name or assets,” said Bernard Kiragu, managing partner at corporate governance consultancy firm Scribe Services.
“Once a company is struck out, its assets may be lost. The Kenya Revenue Authority (KRA) will also be pushing to recover unpaid tax arrears once it is alerted that a firm is about to be axed, while other creditors will also claim liabilities.”
The Companies Act grants powers to the Registrar to strike off a company for not carrying on business or operating.
The law requires that the Registrar send to the company by post a letter inquiring whether the business remains in operation.
Once the 30-day notice lapses, BRS says it will issue another 30-day notice after which it shall issue a gazette notice with the intention to strike off the companies.
“If no response is received within the stipulated time, or if companies indicate that they are not carrying on business, the Registrar of Companies will issue a gazette notice indicating an intention to strike off the companies if an objection is not received in 90 days,” the BRS told the Business Daily in emailed responses.
“Please note, upon the expiry of the 90 days under the gazette notice, the Registrar will issue a final notice, striking off the companies from the register.”
The Deputy Registrar of Companies, Gachugi Hiram, has written to the non-compliant firms, giving them a last shot at making the disclosures or risk ramifications, including de-registration.
“Please note that the deadline for compliance lapsed and consequently, in accordance with Section 894(1) of the Companies Act, the Registrar of Companies has formed a reasonable belief that the listed companies may not be conducting business or not in operation,” Mr Hiram said in a public notice dated April 11.
The fresh regulations bar companies from making public the personal details of the beneficial owners, but open the window for KRA, security agencies and the Financial Reporting Centre to tap the information.
This is a pointer that the State is keen to use the information to tap money launderers, corrupt individuals and tax cheats via the data.
The burden of providing the details to the State rests with companies, who risk a fine of Sh500,000 and a penalty of Sh50,000 for every day in breach.
Firms have been empowered by the regulations to stop paying dividends, block share transfers and end the right for board appointments as well as voting power to substantial investors who fail to provide their particulars for forwarding to the State.
The BRS opened the beneficial ownership information e-register on October 13, 2020, in line with new regulations that required all firms registered under the Companies Act to prepare and submit a copy of the beneficial ownership register to the registrar’s office.
Private companies and limited liability partnerships (LLPs) are mandated to prepare and maintain a register of beneficial ownership at their registered office or premises and submit a copy of the same to the registrar of companies.
LLPs are currently only required to prepare and maintain the beneficial ownership information at their registered address as submission of the data to the registrar is yet to start in the absence of an e-register for the partnerships.
Companies were to comply with the disclosures by November 30, 2024.
Failure to comply with the requirement to disclose an entity’s beneficial ownership attracts a penalty of Sh500,000 after the November 30, 2024, deadline, while a further offence each day the failure continues attracts a fine up to Sh50,000.
Entities must also disclose changes to beneficial ownership information to the Registrar within 14 days or face an administrative fine of Sh2,000.
The BRS had earlier attributed the modest compliance rates of the disclosures to a combination of low awareness levels and the proliferation of dormant entities.
The requirement for filing beneficial ownership information seeks to cover risks of the entities being misused to facilitate criminal activity such as corruption, money laundering, financing of terrorism and the proliferation of tax evasion.
The government is relying on the disclosures to enhance the transparency of beneficial ownership in public procurement.
Procuring entities, including ministries and State departments, are obligated to upload awarded contracts containing beneficial ownership information to the Public Procurement Information Portal (PPIP).
The requirement is part of the conditions attached to the running multi-year loan programme between Kenya and the International Monetary Fund (IMF).
The BRS says it has undertaken interventions to incentivise disclosures by private firms and LLPs, including streamlining the compliance process, providing a portal for disclosures through the eCitizen platform and zero-rating the cost for filing.
The BRS has additionally shared step-by-step guides and tutorials on its platforms on how to file beneficial ownership information.
