Legislative Update: The Companies (Amendment) Act, 2017

On 21st July, the President assented to the Companies (Amendment) Act, 2017 (“the Amendment Act”) and it came into force on 16th August, 2017. It has made a raft of changes to the Companies Act, 2015 and the most notable changes are:

Beneficial ownership

This term has now been defined to mean a natural person who ultimately owns or controls a legal person or arrangements or the natural person on whose behalf a transaction is conducted and it includes those persons who exercise ultimate effective control over a legal person or arrangement. The Amendment Act also requires companies to provide the names and addresses of beneficial owners in the register of members.

Previously the law was silent on beneficial ownership in a company and there was no requirement to disclose the natural persons who controlled legal entities.

Directors and their duties

The Amendment Act has introduced a myriad changes regarding directors in a bid to strengthen corporate governance for companies.

The definition of family in relation to directors has been expanded to include the siblings of a director and their spouses, siblings of a director’s spouse and their spouses, grandchildren of a director and their spouses and spouses of the director’s children or step-children. This definition of family is crucial since members of a director’s family are considered as persons connected to the director and transactions involving such persons have to be notified to the company.

The Amendment Act has further defined a director’s or member’s interest in a matter to mean an instance where the director, member or their family member is a party to the transaction or has material financial interest that could be expected to affect their judgment adversely to the company.

Under the Amendments Act, a director can no longer argue that the situation giving rise to a conflict of interest cannot reasonably be regarded as likely to give rise to a conflict of interest. The only way a director can avoid infringing the duty to avoid conflict of interest is by seeking authorization of the company. In the case of a public company, a majority of members of the board who do not have an interest may grant the authorization or where the transaction is valued at 10% or more of the value of the assets of the company, a majority of the members who do not have an interest may grant the authorization.

Where a transaction which should be sanctioned by a company is carried out without the consent of the company, it is voidable at the instance of the company unless restitution is impossible, the company has been indemnified by other persons responsible or a person acting in good faith has already acquired rights in the transaction. This however does not bar the company from claiming account of profits or any other form of indemnification from the concerned persons. Where a director breaches the duty to avoid conflict of interest, he/she commits an offence and he/she will be liable to disqualification for a period not exceeding five years.

Where a director of a public company has interest in a proposed or existing transaction or arrangement, he/she is now required to inform the members of the company within seventy two hours of informing the other directors.

Power of Registrar to strike off a company that does not change its name

Where the Registrar has directed a company to change its name on account of its similarity with another company’s name and the company does not comply within 14 days, the Registrar is now mandated to publish a notice in the Gazette to strike off the company from the register. Thereafter, as soon as practicable after the striking off, the Registrar shall publish another notice in the Gazette indicating that the name of the company has been struck off the register.

Provisions on companies’ registers

The Amendment Act now allows companies to maintain its members’ and debenture holders’ registers at an office other than the registered office if that is where the registers are prepared or where the registers are prepared by other persons on behalf of the company, at the offices of such persons. This amendment is commendable as it is in line with industry practice where companies often outsource preparation of registers to company secretarial firms.


The Act now provides that where a company has received notice of termination of appointment of a proxy before the start of a meeting, the proxy’s vote will not count in determining whether there is quorum at the meeting and anything the proxy does in presiding over the meeting will be invalid.

Class rights

The Act now provides that holders of any class of shares may vote as a group on any variation of rights of that class if the said variation:

  1. Changes the number of authorized shares in such class;
  2. Changes any of the rights or preferences of shares in such class;
  3. Creates a right of holders of any other shares to exchange or convert their shares to shares of such class;
  4. Creates a new of class of shares with equal or superior to such class or increases the rights of another class of shares to rights equal or superior to such class;
  5. Limits or denies the existing pre-emptive rights of the shares of such class;
  6. Cancel or otherwise affect accumulated dividends on the shares of such class; and
  7. Limits or denies the voting rights of such class.



  1. The Amendment Act has also repealed the section allowing a public company to issue assistance to any person intending to acquire shares in its private holding company.
  1. For the purposes of determining interests in a company’s shares, a spouse strictly refers to a husband or wife where it previously included a person co-habiting with another.

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Authors: Moreen Mwangi

                Brenda Vilita

                Lorna Mbatia