Why Businesses Should Pay Attention to New Commercial Laws.
Kenya has undergone major legislative changes in the past 10 years. New laws geared towards making the country the region´s trading hub have been enacted and implementation is expected to begin in earnest. To spur growth in the commercial sector, for instance, laws touching on business vehicles available have been enacted or updated.
The developments are meant to take away some of the barriers that have made the country less competitive globally. Kenya is currently transitioning from a regime of archaic commercial laws to one that takes cognisance of contemporary trends. More recently, Parliament enacted the Limited Liabilities Partnership Act in 2011 and the regulations governing the Act were released in 2014.
In 2015, the Companies Act and the Business Registration Services Act came into effect. A glimpse at these three Acts shows that the reforms have essentially covered all the possible business vehicles that one can incorporate to trade in Kenya ´ the sole proprietorships, partnerships and companies.
The changes represent the largest reform of commercial law the country has ever seen. And although much of the concepts of the repealed Acts will remain the same, some significant changes have been introduced, many of which are designed to open up ways to operate a corporate business in Kenya.
The business fraternity has welcomed this robust move that will seek to revolutionise commercial practice. This is more so because the old regimes, albeit having served us for over half a century, had many lapses. This is particularly because the previous system was not dynamic enough to accommodate modern legal and financial concepts. But in considering world trends, although what we are doing is commendable, most of it is catch-up or coming "late to the 21st Century party."
In the new Companies Act, for instance, one finds that smaller firms have for the first time in Kenya´s history been put at the heart of the regime. These firms are more likely to benefit from lesser governance and audit requirements. They will, however, need to understand these developments and take a number of actions if they are to reap the full benefits of the new laws. The new regime, for example, allows private companies with a share capital of below Sh5 million to opt to operate with or without a company secretary.
To make it possible, for such firms to operate without in-house counsel the drafters of this new legislation have used a language that is simpler and clearer using the ´do-it-yourself´ mentality as the guiding factor. Again, companies with an annual turnover of less than Sh50 million and net assets of less than Sh20 million or less than 50 employees need not prepare audited financials. Dormant companies, which are common in Kenya, are also exempt from preparing audited financials. It remains to be seen how this will play out while such companies are filing tax returns given that the Kenya Revenue Authority requires tax returns to be companied by audited financials.
A higher level of compliance is, however, expected in larger companies once the rules take full effect. It will be advisable that all companies update their records as soon as possible and maintain accurate registers, documents and records. The downside to this commendable piece of legislation is that failure to comply will result in hefty penalties and fines, ranging from Sh100,000 to Sh15 million. Further, some of these penalties and fines are to be levied not only to the entities but to their officers as well ´ and in some instances, it is coupled with the possibility of the officers serving jail terms. One may argue that the amounts involved are drawn from the modern economic times but whether such consequences are likely to spur compliance or corruption remains uncertain. With such serious consequences in the offing, one cannot afford to ignore the new regulations.
Mr Kokita is an advocate of the High Court of Kenya and a certified public secretary practising as a tax consultant at Viva Africa Consulting LLP.