Companies Foreign companies to face 30 per cent local ownership rule

Attorney-General Githu Muigai has appointed June 15, 2016 as the date to enforce in full the Companies Act. PHOTO | FILE

Foreign companies opening offices in Kenya will be required to cede at least a third of their shareholding to locals after Attorney General Githu Muigai fully operationalised the newly enacted Companies Act 2015.

The new law requires that foreign companies registering in Kenya cede at least 30 per cent of their shareholding to persons who are Kenyan citizens by birth.

Prof Muigai, via a gazette notice issued a fortnight ago appointed June 15, 2016 as the date to enforce in full the Companies Act. The new law was being implemented in phases previously.

Investors who fail to comply with the fresh ownership rules will be slapped with a fine of Sh5 million.

The law comes into force despite Industrialisation Secretary Adan Mohamed’s admission in November last year that the ownership rule was an “error” that would be corrected.

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The statute also provides that there shall be a foreign company register and empowers the Treasury Cabinet Secretary to issue regulations on how foreign companies will operate in Kenya.

Under the repealed law, foreigners were only required to have Kenyan directors with no limits on ownership.

Gad Ouma, a Nairobi-based corporate attorney, said the new ownership rules offer a mixed bag of opportunities for Kenya – allowing locals to pair up with foreign investors; but may also be seen as draconian in liberal market economy.

The new law will not be applied retrospectively – meaning the Act does not apply to existing foreign companies already registered in Kenya, said Mr Ouma.

He says the local shareholding requirement may have been meant to protect national interests, and will help Kenyan investors enjoy dividend earnings that would otherwise be entirely expatriated overseas.

However, he said the “rule is unstainable and may make it hard for Kenya to attract foreign investors.”

The local chapter of the American Chamber of Commerce, a lobby of US investors in Kenya, voiced concern that the new ownership rules may be unrealistic.

“It may be very expensive, if not impossible, for Kenyan individuals to purchase or invest at least 30 per cent in a foreign company.

The process of carrying out due diligence in a company in another jurisdiction to effect the share sale or allotment would not only be time-consuming, but also expensive,” said the club of American investors in Kenya.

There are also fears that the local shareholding requirement will force foreign companies to register in Kenya through local proxies, said a research note authored by law firm Hamilton Harrison & Mathews.