1.0 Procedure for removing a director
from office
1.1 Legal provision:
Section 139 of the Companies Act No 17
of 2015 (“the Act”) provides for removal of directors from office as follows:
a)
A company may, by
ordinary resolution at a meeting, remove a director before the end of the
director’s period of office, despite anything to the contrary in any agreement
between the company and the director.
b)
A special notice is
required for a resolution to remove a director or to appoint a person to
replace the director so removed at the meeting at which the director is
removed.
c)
A person appointed to
replace a director who is removed is taken to have become a director on the day
on which the director in whose place the person is appointed was last appointed
as a director – for the purposes of determining the time which the person is to
retire from office.
d)
A vacancy created by
the removal of a director, if not filled at the meeting at which the director
is removed, can be filled as a casual vacancy.
e)
A person who ceases to
be a director continues to be subject to the duty to avoid conflict of interest
with regard to: the exploitation of any property, information or opportunity
that the person became aware of while a director; and not to accept benefits
from 3rd parties with regard to things done or omitted to be done by that
person before ceasing to be a director.
1.2 The reasons for and ways of removal of a
director from office
a)
By voluntary
resignation;
b)
By ordinary resolution
of members;
c)
By an order of the
court;
d)
If the director becomes
of unsound mind;
e)
If the director is
absent without permission for more than 6 months from meetings of directors
held during that period;
f)
Upon death of the
director;
g)
Upon retirement under
articles of association; and
h)
Upon dissolution of a
company.
1.3 The procedure for removal of a
director from office
a)
Fill Form – CR 9 to
show the outgoing director (s);
b)
Fill the annual returns
form (CR 29) to show that company returns have been made;
c)
During the Annual
General Meeting, the minutes must be signed by the company chairperson and the
company secretary. The minutes should show clearly that the directors agree to
remove directors;
d)
Fill in Form CR19 on
Notice of special/ordinary resolution which contains the resolution on removal
of the Directors;
e)
In case a director is
leaving the company, he/she should provide a resignation letter and an
affidavit;
f)
Once all the relevant
documents are filed at the Companies Registry, request for CR 12 (official list
of directors and shareholders) to confirm the changes have been effected.
2.0 How can a director protest against
his/her removal from office?
Section 141 of the Companies Act
provides for a director’s right to protest against removal as follows:
a)
On receipt of a notice
of a motion for a resolution to remove a director, the company sends a copy of
the notice to the director concerned.
b)
The director, whether
or not a member of the company, may be heard on the discussion of the motion at
the meeting.
c)
Within 27 days after
the notice is given, the director may make with respect to the motion
representations in writing to the company and request that the members of the
company be notified of the director’s representations.
d)
On receipt of any such
request, the company, unless the representations are received by it too late
for it to do so –
a.
In any notice of the
resolution given to members of the company, states the fact of the
representations having been made; and
b.
Sends a copy of the
representations to every member of the company to whom notice of the meeting is
sent, whether before or after receipt of the representations by the company.
e)
If a copy of the
representations is not sent as required, because they were received late or
because of the company’s default, the director may orally require the
representations to be read out at the meeting.
f)
If the company or a
person affected claims that the representations made by the director contain
defamatory matters, the company or the person may apply to the court for an
order.
g)
The director is
entitled to be served with a copy of such an application and to be heard at the
hearing of the application by the court.
h)
On the hearing of such
an application, the court, if satisfied that the representations of the
director contain defamatory matter, makes an order that they need not be sent
out to the company’s members and need not be read out at the meeting, but if
not so satisfied, it dismisses the application.
i)
If the court has made
an order to that respect, copies of the director’s representations need not be
sent out to the company’s members, and those representations need not be read
out at the meeting.
3.0 The procedure for transferring
shares
a.
According to Regulation
80 of the Companies (General) Regulations, 2015 (“the Regulations”), shares can
be transferred from one person to another through a share transfer document
duly executed by, or on behalf of the transferor and transferee. The transferor
remains the holder of the shares concerned until the name of the transferee is
entered in the Register as the shareholder.
b.
A fee may not be
charged by the company for registering any document of transfer or other
document relating to or affecting the title to any share. The company may
retain any document of transfer that is registered.
c.
The member proposing to
transfer any shares is required to give notice in writing to the Company that
he desires to transfer the same. Such notice specifies the sum he or she gives
as the fair value and constitutes the Company his or her agent for the sale to
any member of the Company or person selected as aforesaid at the price so fixed
or at the option of the purchaser, at the fair value to be fixed by the
auditor.
d.
Every instrument of
transfer is lodged at the Company for registration accompanied by the
certificate relating to the shares to be transferred and such other evidence as
the Directors may require in relation thereto.
e.
Regulation 81 of the
Regulations provides that the Directors may decline to register any transfer
unless:
a.
the share is fully
paid;
b.
the document of
transfer is lodged at the company’s registered office or another place that the
directors have appointed;
c.
the document of
transfer is accompanied by the certificate for the share to which it relates,
or other evidence the directors reasonably require to show the transferor’s
right to make the transfer, or evidence of the right of someone other than the
transferor to make the transfer on the transferor’s behalf; or
d.
the transfer is in
respect of one class of shares.
f.
In any case where the
directors refuse to register a transfer, the transferor or transferee may
request a statement of the reasons for the refusal; and the directors are
required to return the document of transfer to the transferor or transferee who
lodged it unless the directors’ suspect that the proposed transfer may be
fraudulent.
g.
If the Directors refuse
to register a transfer they shall, within two months after the date on which
the transfer was lodged with the Company, send to the transferor and transferee
notice of the refusal.
h.
If a request for
reasons for the refusal of registration of the transfer is made by a party, the
directors are required to send the transferor or transferee who made the
request a statement of the reasons for the refusal; or register the transfer
within 28 days after receiving the request.
i.
A certificate duly
executed in accordance with section 37 of the Act specifying any shares held by
a member is, in the absence of proof to the contrary, evidence of the member’s
title to the shares as in section 495 of the Act.
j.
In practice, the
Companies Registry requires that the Share Transfer Deed uploaded into the BRS
portal be one that is franked by the Land’s Registry. You will therefore need
to present the signed Share Transfer Deed, Form D of the Stamp Duty Act and
confirmation that the assessed Stamp Duty has been paid to the Land’s Registry
for franking prior to uploading of these documents to Companies Registry BRS
Portal.
4.0 Ways in which a company can convert
itself
A company can convert itself into any of
the following ways:
a.
from being a private
company to being a public company;
b.
from being a public
company to being a private company;
c.
from being a private
limited company to being an unlimited company;
d.
from being an unlimited
private company to being a limited company; or
e.
from being a public
company to being an unlimited private company.
5.0 Conditions for a company to qualify
for conversion from a private to a public company
Under sections 70 -73 of the Act, a
company would need to meet the following conditions so as to be eligible to
apply for conversion from a private company to a public company (See also the
summary below in Practice Note – PN/05: Alteration of Status of Companies
available on the Business Registration Service (BRS) website:
a.
the shareholders of the
company should have passed a special resolution approving the conversion of the
company to a public company;
b.
the company has a share
capital;
c.
the nominal value of
the company’s allotted share capital must not be less than the authorized
minimum (currently the authorized minimum for public companies is KES.
6,750,000 as per section 518 of the Act);
d.
at least 25% of the
nominal value of the company’s allotted shares, must be paid up as well as the
whole premium on any of the allotted shares (except shares allotted to
employees pursuant to an employees’ share scheme);
e.
if any of the shares in
the company or any premium on them have been fully or partly paid by an
undertaking given by a person for the carrying out of work or performance of
services, such undertaking has been performed or otherwise discharged;
f.
if any of the shares in
the company have been allotted as fully or partly paid up as to their nominal
value or any premium for a non-cash consideration, and the non-cash
consideration includes an undertaking to the company, such undertaking has been
performed (or discharged); or a contract exists between the company and a third
party under which the undertaking is to be performed within five years after
the date of passing the special resolution for the conversion of the company to
a public company;
g.
the company must have:
a.
a recent balance sheet
(not more than seven months before the date on which the application is
lodged);
b.
an unqualified report
by the Company’s auditor on the balance sheet; and
c.
a written statement by
the Company’s auditor that in the auditor’s opinion at the balance sheet date
the amount of the company’s net assets was not it’s called up share capital and
undistributable reserves.
h.
the company allots
shares in the period after accounts just mentioned above were drawn up and
before the special resolution approving the conversion is passed, and those
shares were issued wholly or partly for a non-cash consideration, then the
rules applicable to non-cash consideration received by a public company must
have been complied with;
i.
as a general rule, a
public company issuing shares for a non-cash consideration is required to
undertake independent valuation of the assets and the valuation has to be
conducted not more than six months before an allotment of shares; the company
has not previously converted itself into an unlimited company;
j.
the name and the
articles of association of the company should be changed as necessary in order
for the company to become a public company. For example, the name will now need
to end with “public limited company” or “plc” and the articles of association will
need to be amended to remove any restrictions on the transfer of shares; and
k.
That the company has
not previously converted itself into an unlimited company;
l.
In the case of an
unlimited company, the articles of association of the company should be changed
as necessary, for example, by including a new article that provides that the
liability of the members is limited, in order for the company to become a company
limited by shares.
6.0 Applying for the conversion from a
private to a public company
You must complete the ‘Application for
Registration of Conversion of Company’ Form CR 17. The Form may be downloaded from the Business
Registration Service (BRS) website.
According to PN/05: Alteration of Status
of Companies, you must deliver the Application for Registration of Conversion
of Company’ Form CR 17 at the Companies Registry, accompanied by:
a.
a copy of the name
reservation;
b.
a copy of the special
resolution approving the conversion of the company to a public company;
c.
a copy of the amended
articles of association;
d.
a copy of the relevant
balance sheet;
e.
a copy of the auditor’s
written statement;
f.
a copy of the auditor’s
unqualified report; and
g.
a duly filled and
completed Form CR19.
If the private company that is
converting to a public company does not have a secretary, the application form
(Form CR 17) should include a statement of the proposed secretary. It must also include a copy of the valuation
report in the event of a recent allotment of shares for non-cash consideration.
7.0 Refusal of an application for
conversion by the Registrar
a.
Yes, the Registrar may
refuse to register the conversion under certain circumstances. According to
section 74 (1) of the Act, the Registrar will not register a conversion of a
private company into a public company if the application does not comply with the
requirements in section 74 (2) of the Act.
b.
As well summarised in
Practice Note – PN/ 05 on Alteration of Status of Companies (and reproduced in
verbatim below), the Registrar will not register conversion of a Private
Company into a Public Company if:
a.
the company has
resolved to reduce its share capital pursuant to section 407 of the Act and
this reduction has been confirmed by the Court under section 408 of the Act;
b.
between the balance
sheet date and the date on which the application is lodged, the company’s
financial position is found to have changed so that the amount of the company’s
net assets has become less than the aggregate of its called–up share capital
and undistributable reserves;
c.
an independent
valuation of non-cash consideration has not been conducted within a period of
not more than 6 months before an allotment of shares and when a company fails
to comply with sections 73(2) (b) and 73 (3) of the Act; and
d.
the Application for
Registration of Conversion of Company’ (Form CR 17) is not properly completed
and/or the accompanying documents set out under paragraph 8 above have not been
enclosed.
c.
A fee is payable at the
Companies Registry at the time of presenting the Application for Registration
of Conversion of Company’ (Form CR 17).
d.
The conversion from a
private company to a public company becomes effective upon issuance of the
Certificate of Incorporation. The
changes to the company’s name and the articles of association also become
effective upon issuance of the certificate of incorporation.
8.0
Documents to show that the company has been converted to a public company
a.
Section 76 (3) of the
Act provides that the Registrar shall issue to the company a certificate of
incorporation stating the company’s unique identifying number and that the
company is a public company.
b.
Section 76 (2) of the
Act states that if your company does not already have a unique identifying
number the registrar shall allocate such a number to the company and shall
issue to the company a certificate of incorporation stating the company’s
unique identifying number, and indicating that the certificate is issued on
registration of the conversion, and that the company is a public company.
c.
The certificate of
incorporation is conclusive evidence that the requirements of this Act as to
conversion of the company into a public company have been complied with.
9.0 The circumstances under which a
public company can be converted to a private company
As per sections 77 – 81 of the Act, a
public company can convert to a private company in the following ways:
a.
a special resolution to
that effect has been passed by members;
b.
following a
cancellation of shares the nominal value of the company’s allotted share
capital is brought below the authorized minimum as provided for under section
427(2)(b) of the Act.
10.0 The conditions to be met for
conversion through passing of a special resolution
According to section 77 (2) of the Act,
a company would need to meet the following conditions so as to be eligible to
apply for conversion from a public company to a private company:
a.
the shareholders of the
company have passed a special resolution approving the conversion of the
company to a private company;
b.
the conditions in
section 77 (2) of the Act are satisfied, that is, there should be no
application made to Court to cancel the resolution for conversion or if made,
the Court has confirmed the resolution and a copy of that court order has been
delivered to the registrar; and
c.
the company has made
such changes to its name and its articles of association for it to convert
itself to a private company limited by shares or into private company limited
by guarantee.
11.0 Applying for the conversion from a
public to a private company
According to PN/05 on Alteration of
Status of Companies (Chapter 2, 1.1 (b), you must complete the ‘Application for
Registration of Conversion of Company’ Form CR 17.
You must deliver the Application for
Registration of Conversion of Company (Form CR 17) at the Companies Registry,
accompanied by:
a.
a copy of the special
resolution converting the company into a private limited company;
b.
a copy of the amended
articles of association;
c.
a copy of the name
reservation; and
d.
Duly filled and
completed Form CR19.
Section 80 of the Act provides that the
Registrar may not register the conversion of a public company as a private
limited company unless the conditions as prescribed under section 80 of the Act
are met. These include a requirement that the application:
a.
be accompanied by a
statement as to the new name of the company on conversion;
b.
a copy of the
resolution converting the company (unless one had been sent to the Registrar);
c.
a copy of the company’s
articles as proposed to be amended.
Based on the provisions of section 77 of
the Act, you should note that an application for conversation may only be
successful if an application to cancel the conversation has not been made or if
the same has been made it has been withdrawn or an order has been made
confirming the resolution and a copy of the order lodged by the registrar.
The Registrar shall issue a certificate
of incorporation stating the company’s unique identifier number.
12.0 Can shareholders of the company
object to the conversion?
Yes. According to section 78 of the Act,
a shareholder has a right to object to a conversion through an Application to
the Court for cancellation of the resolution for conversion. The application to
court may be made through an application by:
a.
the holders of not less
in the aggregate than five per cent (5%) in nominal value of the company’s
issued share capital or any class of the company’s issued share capital,
disregarding any shares held by the company as treasury shares; or
b.
if the company is not
limited by shares, at least five per cent (5%) of its members; or
c.
by not less than fifty
(50) of the company’s members;
a.
the court will only
hear such an application if it is made within twenty-eight days of the passing
of the resolution. Also, the application cannot be made by a person who has
consented to or voted in favour of the resolution.
Upon hearing the application, the court
shall make an order either cancelling or confirming the resolution;
The applicants are required to
immediately notify the registrar of the court application.
PN/05: Alteration of Status of Companies
instructs that:
a.
the company must
deliver a copy of the Court’s order to the Companies Registry within fourteen
days of the order being made. Failure to
deliver the court order to the registrar is an offence.
b.
A fee is payable at the
Companies Registry at the time of presenting the Application for Registration
of Conversion of a Company (Form CR 17). Please refer to
https://brs.go.ke/fees-companies-registry.php for the fee schedule.
13.0 What is the procedure for
conversion of a public company to a private company following cancellation of
shares?
PN/05 on Alteration of Status of
Companies (Chapter 2, 1.2) provides details on how cancellation of shares can
result to compulsory conversion of a public company to a private company, and
also provides for the procedure of conversion as listed below:
Where the cancellation of the shares
results in the nominal value of its allotted share capital falling below the
authorized minimum, the company must convert to a private company. The directors can pass a resolution to
convert to a private company.
You must deliver the application to
convert to a private company to the Companies Registry by completing the
Application for Registration of Conversion of Company’ (Form CR 17) accompanied
by a copy of the court order and a copy of the amended articles of association.
A fee is payable at the Companies
Registry at the time of presenting the Application for Registration of
Conversion of Company’ (Form CR 17). Please refer to
https://brs.go.ke/fees-companies-registry.php for the fee schedule.
The conversion from a private company to
a public company becomes effective upon issuance of the Certificate of
Incorporation. The changes to the
company’s name and the articles of association also become effective upon
issuance of the certificate of incorporation.
14.0 Will I receive any documents to
show that the company has been converted to a public company?
Yes. Section 76 (1) of the Act states
that the Registrar shall register the conversion of a company into a public
company if satisfied that an application for conversion complies with the
requirements of the Act.
The registrar shall issue a certificate
of incorporation stating the company’s unique identifying number and that the
company is registered as a public company.
15.0 What is the process of converting
When a private limited company to an unlimited company?
The conditions and process of converting
a private limited company to an unlimited company is provided for in Division
4, sections 82 – 84 of the Act.
Section 82 of the Act provides that a
private company may convert itself into an unlimited company if the following
conditions are met:
all the members of the company have
assented to its conversion to an unlimited company
the company has not been previously
registered as an unlimited company; and
an application for registration of the
conversion is lodged with the Registrar of Companies in accordance with section
83 of the Act.
16.0 How does one apply for the
conversion to an unlimited company?
The practical process of applying for
conversion of a Company to an unlimited company is explained in PN/05 on
Alteration of Status of Companies (Chapter 3, question 3) as reproduced below:
You must complete the ‘Application for
Registration of Conversion of Company’ Form CR 17. You must deliver the
Application for Registration of Conversion of Company (Form CR 17) at the
Companies Registry, accompanied by:
a.
the prescribed form of
assent (set out in Form CR 17);
b.
duly filled and
completed Form CR19;
c.
a copy of the amended
articles of association; and
d.
a statement of the
company’s new name on conversion.
The form of assent is to show that all
members have agreed to the conversion to an unlimited company and must be
authenticated by or on behalf of all the members of the company.
A fee is payable at the Companies
Registry at the time of presenting the Application for Registration of
Conversion of Company’ (Form CR 17). Please refer to
https://brs.go.ke/fees-companies-registry.php for the fee schedule.
Section 84 of the Act provides that the
Registrar shall issue a certificate of incorporation to the company stating the
company’s unique identifying number and that the company is an unlimited
company. Once the certificate of incorporation is issued:
a.
the company becomes an
unlimited company; and
b.
the changes in the
company’s name and articles take effect.
17.0 What is the process of converting
an unlimited company into a private limited company?
Division 5, sections 85 to 88 of the
Companies Act provide for the requirements and process of conversion of an
unlimited company to a private limited company.
For an unlimited company to be converted
to a limited company, conditions as provided for in section 85 (2) of the Act
must be met:
a.
a special resolution
that the company should be converted to a limited company, provided that the
resolution complies with the provisions of section 85 (3). This section
provides that the resolution will be ineffective unless it states whether the
company is to be limited by shares or by guarantee;
b.
the company has not
been previously registered as a private limited company;
c.
an application for
registration of the conversion is lodged with the Registrar of Companies in
accordance with section 86 of the Act; and
d.
the company has made
such changes to its articles as are necessary in connection with it becoming a
private company limited by shares.
18.0 What is the practical process of
conversion of an unlimited company to a private limited company?
The practical process of applying for
conversion of an unlimited company to a private limited company is explained in
PN/05 on Alteration of Status of Companies (Chapter 4, question 3) which is
available on the BRS website, as reproduced below:
a.
You must complete the
‘Application for Registration of Conversion of Company’ Form CR 17.
b.
You must deliver the
Application for Registration of Conversion of Company (Form CR 17) at the
Companies Registry, accompanied by;
a.
a copy of the special
resolution converting the company into a private limited company;
b.
if the company is to be
limited by guarantee, a statement of guarantee (set out in Form CR 17);
c.
duly filled and
completed Form CR19 [Notice of special/ordinary resolution required by
Companies Act to be lodged with the Registrar];
d.
a copy of the amended
articles of association; and
e.
a statement of the
company’s new name on conversion.
c.
If a company whose
conversion has been registered has already allotted share capital, you must
complete and deliver a statement of capital within fourteen days after the
registration as a private limited liability company.
d.
A fee is payable at the
Companies Registry at the time of presenting the Application for Registration
of Conversion of Company’ (Form CR 17). Please refer to
https://brs.go.ke/fees-companies-registry.php for the fee schedule.
19.0 When does the conversion to a
limited company take effect?
Section 87 (5) of the Companies Act
provides that on the issue of a Certificate of Incorporation, the company
becomes a limited company and the changes in the company’s name and articles
take effect;
The certificate of incorporation is
conclusive evidence that the requirements of the Act as to registration of the
conversion have been complied with.
20.0 What are the requirements for
conversion of a public company into an unlimited private company with share
capital?
The requirements for converting a public
company into an unlimited private company are provided for in Division 6,
section 89 to 91 of the Companies Act.
A public company limited by shares may
convert itself into an unlimited private company with a share capital if the
following conditions are met:
a.
all the members of the
company have assented to its conversion from a public company to an unlimited
private company;
b.
the condition specified
in section 89 (2) of the Act has been met. The said condition being that the
company has not previously been registered as a limited company or an unlimited
company; and
c.
an application for
registration of the conversion is lodged with the Registrar of Companies in
accordance with the provisions of section 90 of the Act.
21.0 What are the conditions for
conversation from public limited company to unlimited company?
The condition is that the company has
not previously been registered as a limited company; or as an unlimited
company.
The company shall make such changes in
its name and in its articles, as are necessary in connection with it becoming
an unlimited private the company.
22.0 What is the process of converting a
public company to an unlimited private company?
The practical process of applying for
conversion of an unlimited company to a private limited company is explained in
PN/05 on Alteration of Status of Companies (Chapter 5, question 4) which is
available on the BRS website, as reproduced in the next three bullet points
below:
You must complete the ‘Application for
Registration of Conversion of Company’ Form CR 17.
You must deliver the Application for
Registration of Conversion of Company (Form CR 17) at the Companies Registry,
accompanied by:
a.
the prescribed form of
assent (set out in Form CR 17);
b.
duly filled and
completed Form CR19;
c.
a copy of the amended
articles of association; and
d.
a statement of the
company’s new name on conversion.
A fee is payable at the Companies
Registry at the time of presenting the Application for Registration of
Conversion of Company’ (Form CR 17). Please refer to
https://brs.go.ke/fees-companies-registry.php for the fee schedule.
Section 90 (2) of the Act provides that
the form of assent must be authenticated by or on behalf of all the members of
the company. The form is an indication that all members have agreed to the
conversion to an unlimited company.
Section 91 (6) of the Companies Act
provides that on the issue of a Certificate of Incorporation, the company
becomes an unlimited private company and the changes in the company’s name and
articles take effect.
The certificate of incorporation is
conclusive evidence that the requirements of the Act as to registration of the
conversion of the public company into an unlimited private company with share
capital have been complied with.
Courtesy of : Gerivia Advocates
