Wednesday, April 27, 2022

LEGAL PRACTICE MANAGEMENT: ESTABLISHING & RUNNING A LAW FIRM

LESSON ONE

1.1  Introduction.

Once admitted to the Bar, an advocate in Kenya has various options to which he can apply the legal knowledge and skills acquired in training. As such, not all advocates will enter legal practice as private practitioners, some may practice law as salaried employees of an institution that provides legal services, as state prosecutors, a state counsel, as an advocate employed by a corporate entity, as a lecturer or, some may become company secretaries, legal officers of particular organs of state etc.[1]This class focuses on legal management in theory and practice and as guided by the laws in Kenya. It seeks to analyze legal management and how best it can be used to meet the goals and objectives in any law practice.

1.2 Definition of Legal Management

There is no definite definition of legal management. However, for the task herein, we will adopt a conceptual definition of the term.  The word legal, means of, relating or falling within the province of law or established by law.[2] On the other hand, management entails the aggregate of activities that would be required to be done in order to open and to operate successful legal practice. As such legal management in this sense is seen as a means to an end, the end being; to produce the desired results in law practice and eventually to legally operate successful law practice. Of specific concern is management of the legal practice by private practitioners. Further, a comparative study will be conducted with respect to those practicing as state attorneys and their management system. 

1.3 History of legal management

The legal profession has its roots in Rome and Greece. In Rome, there were the juriconsult who acted as legal advisors of the Roman people and the patronus causurum (patron) who appeared in courts to defend the cause of their client. The patron in providing legal services did not, at the beginning, receive any pay for their services since the same was considered inappropriate and an abomination.[3] At this particular time  practitioners did not practice in organized offices nor was there any law that imposed obligations upon them. This system later graduated into the English system of Barristers and Solicitors and then consequently the more organized system of law firms.[4] Historically, law firms didn’t invest significant time and energy on strategic plans. They devoted less effort to strategic planning. They paid lip service to planning rituals, and tended to be more reactive than proactive in the way they conducted their business.[5] One writer, Daniel B. Evans, on why lawyers did not have regard to management attributed that to the kind of education received in law schools. He indicates that, lawyers were led to believe that what they are learning is very important, very difficult, and very special. That as a matter of fact, the study of law has engaged some brilliant minds. He proceeds to state that the decisions of courts, constitutions and statutes framed by lawyers, have changed the course of nations, major corporations, and the rights and lives of most citizens. Consequently, to the lawyers, every other profession or occupation becomes less important, less difficult, and less special thus making it difficult for lawyers to have respect for, or consult with, professional managers.[6]

Lately, however, firms are beginning to apply more rigor and discipline to the task of measuring and managing the performance of the firm. They realized that there was a need to not only understand the clients’ legal needs but also understand their business and industries at a deeper level and that the objective of the firm should be to run the firm like a business not as a collection of billable legal experts.[7]

Remarkably, and particular to Kenya, the transplantation of the Advocates Act of England into Kenya and the acquisition, by Kenyans, of the English system of legal education saw the beginning of a new era in the legal field. Further, the formation of Law Society of Kenya, laid down a platform through which legal practitioners can be managed. For instance, they have promulgated the Advocates (Practicing) Rules, Advocates (Accounting) Rules, the Guidelines on Etiquette and Professional Conduct etc. All of these have various prescriptions on, how advocates should carry on their practice. The Advocates Marketing and Advertising Rules touch further on management. Consequently, firms are beginning to apply more rigor and discipline to the task of measuring and managing the performance of the firm. They have realized that there was a need to not only understand the clients’ legal needs but also understand their business and industries at a deeper level and that the objective of the firm should be to run the firm like a business not as a collection of billable legal experts.[8]

1.4 Importance of Legal Practice Management

The importance of legal management cannot be overemphasized. First, while it is always emphasized that the legal profession principal purpose is public service, it is untenable to state that legal practice, like all other business enterprises, can be run without making profits. Management is the tool towards effectiveness and profit maximization by law firms. Second, management looked at in light of the laws surrounding it is a tool that can be utilized to ensure compliance with the laws of the land.  For instance, keeping of accounts is a statutory requirement which if not properly done attracts legal sanctions.[9] Third, through management, a roadmap of legal infrastructure required to support the activities of the firm, ranging from competent and skilled manpower, updated library, departmentalized litigation areas, stationary, scheme of service and capacity building for employees among others is created. Therefore, practice management should be an integral part of any law practice.

 

ESTABLISHING A LAW FIRM

2.1 Introduction

Establishing a law firm requires both deep thought and organization.[10] It is prudent that an advocate who seeks to open a law firm outlines a structure or plan of how to ensure that both establishing and running of the firm is successful from the word go so that by the time he opens his doors to his first client, nothing holds him back. An advocate before making a decision, therefore, to the effect they want to run a law firm, there are various measures to be put into consideration. Of focus herein are choosing the nature of business organization to adopt and the means of registering the same, procuring a practicing certificate. The same are enumerated and expounded upon below;

2.1.1 Procuring a Practicing Certificate.

The qualifications required of an advocate to practice are prescribed by the Advocates Act.[11]Upon admission as an advocate of the High Court, the advocate is required to apply to the registrar of the same court to be issued with a practicing certificate.[12] The application is made in duplicate, signed by the advocate and it is to contain such as, his name and place of busi­ness, and the date of his admission as an advocate[13];

There are several things that must accompany the application for a practicing certificate. First, there is must be evidence of payment of prescribed fees to the Law Society of Kenya and the Advocate’s Benevolent Association which is an organ of the Law Society of Kenya whose main objective is to collect contribution from LSK members for supporting advocates' dependents in the event of their demise.[14] The applicant is required to complete two copies of a statutory declaration to accompany the application (attached herewith) and return the same with two separate cheques in favour of the Law Society of Kenya and the Advocates’ Benevolent Association to the secretary of the Law society of Kenya. Second, he must present a written approval from the President of the Law Society of Kenya to the effect that there is no objection to the issuance of the Certificate.[15] Third, it must be accompanied by a duly filled Accountant’s Certificates form filled by a qualified accountant who has examined the advocate’s accounts as expounded upon herein below. There is no requirement for such certificate for first time practicing certificate applicants.[16] The fourth is a Statutory Declaration form. This is so that the applicant can prove that they have complied with the provisions set out in Section 9 of the Advocates Act. Fifth, and with respect to advocates who are not first time applicants, they must present evidence of having completed at least five units of Continuing professional Development or the evidence of exemption thereof. [17]Lastly, there must be evidence of payment of the advocates Professional Indemnity Cover.[18]

The registrar upon satisfaction that the applicant’s name is on the Roll of Advocates and that he is not suspended from practice issues the applicant a practicing certificate which authorizes applicant to practice.[19] A practicing certificate is valid from the date of issuance and expires at the end of the practicing year. As such, therefore, upon expiry, the advocate to be qualified must apply to the registrar for renewal of the practicing certificate.[20]

There is a rebuttable presumption that the appearance of a name of an advocate in a list maintained by the registrar for the purpose of current practicing certificate holders is evidence that such advocate holds such certificate.[21]

Where an advocate does not have in force a practicing certificate, he is unqualified to practice as advocates.[22] Section 31 of the Act states in mandatory terms that such person should not institute, carry on or defend any suit or other proceedings in the name of any other person. The section proceeds to set out the consequences of breach of that provision. First, he is guilty of contempt of court, second, he is not capable of maintaining a suit for costs. Once the advocate has a current practicing certificate he can proceed to open a law firm.

2.2Factors to Consider when Establishing a Law firm

 Some of the key factors to be put into consideration include;

2.2.1 The Nature of Business Association.

An advocate wishing to practice in a law firm may do so either as a sole proprietor or in a partnership which partnership can either be ordinary or limited liability.

Sole Proprietorship

Where it is a sole proprietor, ownership and control of the business rests with a single individual. Owner is not separate from the business and has sole unlimited personal liability for the business, its debts and contractual obligations, and any claims against it. Regulation for sole trader is minimal for instance no requirement for a formal constitution for the business and etc , and it is easy to register.[23]It should be registered in accordance with the Registration of Business Act.[24]

The procedure for registering a sole proprietor entails conducting a names search. One will need to write a letter requesting for a name search to be performed on his behalf. This can be done at the Huduma Center or at the Company Registry at Sheria House. The cost is usually Kenya Shillings One Hundred (Kshs. 100/=).Thereafter, if the business name is available for registration it is reserved after which he proceeds to register within a period of about twenty eight days. reserved. The applicant will fill a BN/2 form, pay Ksh.600, in which the form will list; nature of business, postal address, principal place of business, age sex, names of the applicant. On register receiving this information, he shall proceed to register the firm. At this point he shall issue the firm with a certificate of registration in form BN/3.

Partnership

Partnership can be defined as the relation which subsists between persons carrying on a business in common with a view of profit. Just as registering a business, the partnership will have to apply to be registered[25]. A partnership can be either ordinary of limited liability. The process outlined above for registration of a sole proprietorship applies while registering an ordinary partnership. However, the statement of particulars must be signed by all partners or by one partner, if verified by a statutory declaration made by the signatory.[26]

As regards a limited liability partnerships, they must be in writing and they must be registered. An application for registration is submitted to the Registrar of Partnerships.[27]. Accompanying the application for registration is the name of the proposed name[28] of the Partnership which name should not be undesirable or similar to that of another limited partnership[29]. Where the name is available a reservation is made for two months upon payment of a fee of Kenya Shillings One Hundred. Thereafter, a statement in a FORM LLP1 accompanied by a fee of Kshs. 10,000/= signed by each person who proposes to be a partner of the proposed LLP containing the name of the partnership, the general nature of the proposed business of that partnership, the proposed registered office, the name, identity document if any, nationality and usual residence of each person who will be a partner of the partnership is to accompany the application for registration. The application is considered and if approved a certificate of registration is issued in the form of Form LLP2.[30]

Limited Liability Partnerships are recommended as the liability of partners in relation to debt obligations of the partnership, like a company, is limited to their capital contribution and the partnership it as juristic person, able to sue and being sued.[31]The downside however is the increased regulation by the law. For instance in accounting matters as will be demonstrated hereinbelow under the Finance topic.

2.2.3 Tax remittance and other Statutory Deductions.

In addition, it is mandatory that the said firm also apply to the Kenya Revenue Authority for a Pin Certificate to ensure that it complies with the law as to paying taxes. It is also required that it register itself with relevant mandatory statutory requirements like the NHIF and NSSF (to ensure that they and their employees remit the statutory deduction in the course of their business operations as mandated.

2.3 Location

Choosing a suitable location of a law firm is very important. An advocate should have regard to various factors. The First factor is the subsisting local and national laws. The Physical Planning Act regulates users of land. The County Government will ordinarily have local plans which prescribe what can be or cannot be done in a particular area. Therefore, an advocate would want to scrutinize such plans to ensure that they permit commercial activities in the proposed office location. [32]

Second, the advocate should consider the existing laws especially County Government ones. The laws subsisting at one particular time may attract or drive away target clients. For instance an advocate, after deciding he want to do Conveyancing would want to locate his office in a place where land rates and rents are lower thus likely to attract many transactions.

Third is safety and security. The location should be one that ensures both the employees and visiting clients are not exposed to danger. As such, it owes a duty to his visitors in respect of the dangers due to the state of the premise or the things done or omitted to be done on them. This imposes a liability in tort to the firm.[33]Further, it needs to ensure the safety, health and welfare at work of all employees.[34] This applies to all employees whether temporary or permanent.[35]

Fourth is accessibility. The firm must be placed strategically to that ensure it is easily accessible visible and has access facilities such as good roads, banks, courts etc.


                     RUNNING A LAW FIRM

Role of human resource in the running of a law firm; legal provisions applicable, recruitment; placement, induction;, advertising, record and record management; policy formulation .

3.2 HUMAN RESOURCE MANAGEMENT

It has been argued, and rightly so that human resource is the key resource that an organization could have. As such, organizations, while dealing with staff, ought to have in mind that they are people who need to be managed as they are potential assets rather than merely a variable cost.[36] Human Resource Management aims to ensure that the organization obtains and retains the skilled, committed and well-motivated workforce it needs.[37]Human Resource Planning ensures that there is adequate quantity and quality of employees at any particular time. It also enables one to forecast the firm’s future staff needs vis-a-vis the already existing ones, compare the needs with the financial ability of the firm then plan for how the needs will be met.

In the initial stages, an advocate, depending on his financial muscle may operate alone with few staff as are necessary, for instance a secretary and a clerk. However, as time goes by and as his practice grows, there grows with the practice the demand for more human resource. One of the ways to meet staff needs for a new firm is to recruit, properly select and deploy the staff so recruited.   As such, he has to list the positions, skill and time needed for each position[38]. The advocate should further have in place a management plan which will outline the policies the staff will abide by, financial packages intended to compensate them and also a clear forecast of how it is intended for the law firm to adapt to changes. The plan should also include a foreseeable staffing growth and how the same will be accommodated[39], as well as plans for expansion as and when the right time comes.

Dealing with human resource requires a realization that they are people, first of all, thus subject to the constitutional right to fair labour practices and the right to fair remuneration.[40] In that regard, he should ensure that he doesn’t oppress them and that the remuneration given reflects the relative worth of their work.

In the recruitment process further, he is to ensure that all applicants are given a level playing field without according any preferential treatment to some to the disadvantage of others. This is because all persons have the right to freedom from discrimination on whatever grounds.[41] This position stands even during the continuance of the employment. As such, any policy or practices that promotes equal opportunities to all employees in respect of recruitment, training, promotion, terms and conditions of employment and should not be discriminatory.[42]As far as remuneration is concerned, he ought to pay his staff equal remuneration for work of equal value at which failure he is guilty of a criminal offence.[43]

 Upon recruiting, the advocate like any other employer is required, by the Employment Act to give written employment contracts to all employees whose contract is of or exceeds three months.[44]Such contract is then signed by the employee and it should specify the job description of the employment and the remuneration and any other benefits.[45].

Further, he is required to ensure that any form of sexual harassment whether in form of direct or indirect requests for sex, language or sexual nature, material of sexual nature or physical behaviour that’s of sexual nature, is unheard of within the firm. In the event that he has twenty or more employees, he should issue a policy statement[46] on sexual harassment after consultations with the employees or their representatives.[47]

3.3 Advertising

Upon establishment or during the course of an advocate’s practice, an advocate needs to make known, to the public, of his existence. This is so because, as a legal services provider, he needs to attract clients. One of the ways of attracting clients is through advertising, referrals from other advocates, use of letterheads etc.

Concerning advertising, the case of Okenyo Omwansa George & Another vs Attorney General & 2 Others, held that in line with Articles 46(1) and 48 of the Constitution; advocates have a right to advertise. It is from such decisions as the one above that the Law Society of Kenya, seeing the need to take into considerations the need to maintain the standards of the services offered by the legal profession and still operate within the bound of the law, promulgated the Advocate (Advertising and Marketing) Rules, 2014. These rules prescribe the extent to which advocates can advertise or market as herein under discussed.

The Rules prohibit for an advocate to, whether directly or indirectly, apply for or seek instruction for professional business, do or permit in the carrying on of his practice anything which can reasonably be regarded as calculated to attract business unfairly.[48] Advocates being members of this profession are to ensure that their advertising does not Advocates being members of this profession are to ensure that their advertising does not demean the profession as a noble profession.  Thus it is important that firm does not compromise itself when it comes to advertising. It must abide by the set out rules of the Law Society of Kenya.

3.4 Record and record management

3.4.1 Records.

A record refers to all information created, sent and received in the course some activity or activities, duty or transaction. Records provide a point of reference in the course of the transaction or task being engaged in, be it in an organization or in a personal capacity.[49]Article 35(1) of the constitution stipulates the importance of keeping records in relation to access of information. Furthermore section 74 of the Employment Act requires an employer to keep truthful records of employees[50]

3.4.3 Record Management

It is defined as the practice of maintaining the records of an organization from the time they are created to the end of the life cycle or disposal[51]. In relation to record management, the organization should create a retention policy to ascertain as to how long such records are to be kept and when to dispose of them. Especially concerning public records, as guided by the Public Archive Act, Cap 19 ; Laws of Kenya. The firm must also know in which format such records are to be kept, for example, in hard drives, physical files, depending on the sensitive and access to the same. Only a few personnel should be able to retrieve such records to avoid compromise. As such records should be under lock and key (passwords where necessary).


FINANCE

The accounts in a law firm; legal provision therein, insurance, and the various insurance policies taken by law firms.

4.2 Accounting

Accounting entails the provision of financial information of a business through financial statements and reports.[52] It is a legal requirement that advocates must keep accounts in the course of carrying out the business of legal practice and the advocate should submit a duly certified certificate to the Council of the Law Society of Kenya stating that a registered accountant has examined the books, accounts and document of the advocates’ law firm.[53]

The Accountant should not have been at any time during the accounting period, or subsequently, before giving the certificate, become a partner, clerk or servant of such advocate or any partner of his. Additionally, he should not have been disqualified for some other reason for instance through a finding of guilt by the Institute of Certified Public Accountants of Kenya for professional misconduct or discreditable conduct.[54]

Before signing the accountant's certificate an accountant should: make a general test examination of the books of account of the advocate; ascertain whether a client account is kept; make a general test examination of the bank pass books and statements kept in relation to the advocate's practice; make a comparison, as at not fewer than two dates selected by the accountant, between the liability of the advocate to his client as shown by his books of account the balance attending to the credit of the client account; and ask for such information and explanations as he may require arising out.

If after making the above investigations it appears that there is evidence that the Advocates (Accounts) Rules have not been complied with, the Accountant, is obliged to make such further investigations as may be necessary to enable him to sign the certificate.[55]

However, there are categories of Advocates who are exempted from the delivery of the certificate, they include:-Advocates who hold their first current practicing certificate. Advocate who after having ceased to hold a current practicing certificate for twelve months or more and has not held client’s money, holds his next current practicing certificate and an Advocate who delivers to the Council of the Law Society of Kenya a statutory declaration stating that the Advocates (Accounts) Rules did not apply to him because he had not practiced on his own account either alone or in partnership or held or received client's money during the period to which the declaration refers.

Upon a delivery of the certificate or the statutory declaration, the Secretary to the Council of the Law Society of Kenya is supposed to issue a certificate to the Advocate.[56] failure to produce an advocate’s certificate or statutory in lieu therefore is professional misconduct.[57]

4.3 Types of Accounts kept by Lawyers

4.3.1  Client Account

The Advocate Act[58] defines a ‘client’ as a person who has power to employ or retain an advocate and has exercised that power or a person who would be liable to pay advocate’s costs. The person does so as a principal. Under the Advocates (Accounts) Rules, an advocate is required to maintain an account separate from that of their own or of the firm known as a Client Account[59] in which all transactions relating to client’s finances are recorded.[60] He has the discretion to keep one or several client accounts as he thinks necessary.[61] Into this account, the Advocate is supposed to pay all clients’ money without delay.[62] If a cheque drawn by the firm on a client account is dishonoured, professional misconduct is disclosed and disciplinary action will follow against the law firm.[63]

Money into the client’s account can only be paid as provided for under the Rules.[64]  Client’s money includes that which an advocate receives on account his client is for disbursements, is meant for maintenance of the client account, is from a spilt cheque, is meant to replace money wrongly withdrawn from the client’s account.[65]Withdrawal of money from the client’s account can only be done if expressly authorized by the Rules or with the authorization of the Council of the Law Society of Kenya upon application by the advocate.[66] the express ways are; money towards the payment of professional fees to the advocate upon delivery of the bill of costs, any erroneous deposits, to transfer the money to another account opened on behalf of the client and a withdrawal authorized by the client[67]

This restriction in depositing or withdrawing from the Client’s account is meant to ensure that the Advocate doesn’t deal with the client’s account and finances or make secret profits. The Advocate is required to keep proper books of Accounts, including cash books or ledgers, in respect of every client. In the event of destruction or damage to such records, he is required to inform the Council indicating the circumstances under which the event being reported occurred.[68] In instances where the money accrues interest, The Advocate (Deposit Interest) Rules[69] provide that the advocate is not liable to account to any client for the interest in respect of moneys received held for his clients generally.[70]Conversely, where the money, in respect of a specific client or specific matter in respect of a specific client, is held in a separate designated account, the Advocate is liable to account for the same.[71]

4.3.2 Office Account

Office account is used by lawyers to keep money in relation to running the affairs of the office. It may also hold profits accrued from the business of running a law firm. Office account is opened in the name of the law firm.

4.3.4 Partnership Accounts

All partners in a law firm need to understand what a partnership is all about in terms of sharing profits and losses, liabilities attaching, dissolution among others. When running a Partnership, keeping of accounts largely depends on whether the partnership is an Ordinary or Limited Liability Partnership. With the Ordinary type, keeping of accounts is not much regulated by statute. As such, the Partnership Act provides that any one partner is bound to render true accounts and full information of all things affecting the Partnership to all others or their legal representatives.[72]

Concerning a Limited Liability Partnership, it is mandatory that it keeps such accounting and other records at such place as the partners consider fit. Such records should be sufficient to explain the transactions and financial position of the partnership and also enable the preparation of a profit and loss account and a balance sheet from time to time so as to give true and fair view of the state of affairs of the partnership.[73] In addition, accounting records cannot be disposed off before the expiry of seven years after completion of the matters to which such records relate.[74]

Monies with respect to the running of the affairs of the office and profits accruing from the running of the firm, whether sole proprietor or a partnership, should be deposited in an office account opened in the name of the firm.[75]

4.4 INSURANCE

4.4.1 Insurance Policies Applicable In Law Firms

With reference to law firms insurance policies are applicable to protect the practice against the impact of risks which may arise in the course of business.[76] There are several insurance policies that an advocate may take up as hereunder;

4.4.1.1 Professional Indemnity Cover.

Every advocate planning on practicing on his own behalf is required to purchase an insurance policy known as a Professional Indemnity Cover.  This is a precondition before one is issued with a practicing certificate[77] .The purpose of the cover is for compensating clients for loss or damage with respect to any civil liability or breach of trust to which the advocate or his employees may be subject to. The value of the cover at any particular time is not to be less than one Million Kenya shillings.

Thursday, April 7, 2022

SUMMARY OF THE PROVISIONS OF THE COMPANIES ACT, 2015

SUMMARY OF THE COMPANIES ACT 2015 (COMMENCEMENT)
SUMMARY OF THE PROVISIONS OF THE COMPANIES ACT, 2015 THAT CAME INTO OPERATION ON 6TH DECEMBER 2015


The Companies Act, 2015 was assented by the President on 11th September 2015 with only Section 2 of the Act coming into operation on the date of gazettement on 15th September 2015. All other parts and sections were to come into operation upon a gazette notice by the Cabinet Secretary responsible for company matters, the Attorney General. In exercising such powers, the Attorney General has opted for a phased/ staggered approach in operationalizing the laws. The first phase of implementation of the laws was published in Gazette Notice 233 of 2015 where the following parts are now operational; Parts 1 to 14, Part 23, Part 31, Part 32, Part 38, Part 40, Part 42 and the First, Second and Sixth Schedules of the Act.

The AG has indicated that the second phase of implementation which includes the following Parts of the Act: Parts 15-22, Part 24-28, Part 30, Part 33-37, Part 39, and Part 41. The commencement date for this phase will be by notice.

The Attorney General has also published the Companies (General) Regulations, 2015 which prescribes additional requirements as required by the Act, the necessary forms and the fees for the services offered by the Companies Registry.

The summary below highlights the parts that are now operational under the Act:-


PART I (Sections 1-4) deals with preliminary matters. In addition to providing for the commencement of the section’s provisions, the Part specifies the objects of the Act and defines various terms used in it, including “subsidiary”, “holding company”, “undertaking”, “parent undertaking”, “subsidiary undertaking”, and “dormant company”.

PART II (Sections 5-19) outlines the types of companies that can be formed and deals with their formation and registration. Companies can either be limited by shares or by guarantee or have unlimited liability. Companies limited by shares can either be public companies (which are generally large corporations) or private companies (which are generally small proprietary companies including sole companies).

The Part also provides for the formation of companies. A company limited by shares is required to have a memorandum of association and articles of association, which together form the company’s constitution. Such a company is also required to have a statement of capital and initial shareholdings. A company limited by guarantee is required to register a statement of guarantee. A company may also be registered as an unlimited company, in which case the liability of its members on liquidation of the company is unlimited.

On registration of the required documents as provided under the Companies (General) Regulations, 2015, the Registrar of Companies is required to issue the company with certificate of incorporation.

Companies registered under the Companies Act (Cap 486) will continue under the Act. When registered, a company will have perpetual succession irrespective of its membership.

PART III (Sections 20-32) this part makes further provision for a company’s constitution (i.e. the memorandum and articles of association). Among other things it provides for application of model Articles as prescribed in the Regulations already published, procedures to enable amendment of the Articles of Association of a company;

Other provisions specify the requirements on the objects of a company and the effect of a constitution of a company. It should be noted that the memorandum of association for the existing companies shall be treated/construed as provisions of the Articles of Association.

PART IV (Sections 33-47) this part deals with the capacity of a company to do certain acts such as powers to enter into binding contracts and powers of directors binding on the company.

Provision is also made for a company to have a common seal(but a company is not obliged to have one) and provides for its use for the authentication of documents. A further provision is made that will now enable a company to have an official seal for use outside Kenya.

The Companies are also required to compulsorily have a registered office and would notify the Registrar of change of the registered office.

PART V (Sections 49 – 68) this part deals with the names of Companies. The provisions in this part restrict the use of names that suggest a connection with the Government, offensive names. The Companies (General) Regulations, 2015 prescribe under Regulations 8 – 12 which such names indicate connection with public authorities, characters now permitted to be used in Company’s name and the circumstances in which a company name will not be registered. A public company name must end with “public limited company’ or plc.

Other provisions in this part allow a company to change its name by a special resolution or by means provided for in the articles of association whereafter a new certificate of incorporation would be issued. The provisions also specify the effect of a change of company’s name and disclosure requirements on its documents and publications.

PART VI – (Sections 69 – 91) this part deals with alteration of company status enabling conversion to another kind of company. In particular:-

a private company will be able to convert itself into a public company;
a public company will be able to be convert itself into a private limited company;
a private limited company will be able to convert itself into an unlimited company;
an unlimited company will be able to convert itself into a limited company; and
a public company will be able to be able to convert itself into a company that is both private and unlimited.
Another provision will require the Registrar of Companies not to process an application for the registration of a conversion of a company into another kind of company unless the application complies with prescribed requirements. A further provision will require the Registrar to issue a certificate of incorporation to the company on registration of the conversion.

PART VII (sections 92-113) deals with the membership of a company. In particular, the Part relates to members of companies and, in particular, prescribes how persons become members of a company. Among other things, the Part will require a company to keep a register of members and to keep the register available for inspection at its registered office.

Other provisions will require certain companies to keep an index of its members; and specify the rights of persons to inspect a company’s register of members and require copies. Further provisions will enable the High Court to rectify company’s register of members and prohibit a company from entering notices of trusts on its register of members. The provisions under this Part also prohibit a subsidiary from being a member of its holding company: and prescribes other provisions relating to subsidiaries of a company. A provision of the Part also allows a private company to have only one member.

PART VIII (Sections 114-l2l) provides for the exercise of rights of the members of a company. In particular, the Part specifies the effect of provisions of articles on the enjoyment or exercise of rights of members. Other provisions enable certain persons to have information rights relating to traded companies (i.e. companies whose shares are traded on an authorized stock exchange) and confer other rights to information about companies and enable the rights of members to be exercised by others in certain circumstances.

PART IX (Sections 122-212) this part deals with Company Directors. It provides for the appointment and removal of directors of a company. In particular, the Part will require a company to have directors. Companies are required to have at least one natural person to hold office as a director. Other provisions prescribe the qualifications required for appointment as a director of a company; require a company to keep a register of its directors; and prescribe the particulars of directors that are to be recorded in the register. The minimum age for one to be a director is now eighteen(18) years.

Another provision requires a company to notify appointments of directors and of their addresses to the Registrar of Companies and also when directors cease to hold office as such or any changes relating to them occur. Another provision provides for directors to be removed from office by resolution of the members. Further provisions prescribe directors’ rights and duties of office. These include-.

a director’s right to protest against removal;
the duty of a director to act within power;
the duty of a director to promote the success of the company;
the duty of a director to exercise independent judgment;
the duty of a director to exercise reasonable care, skill and diligence;
the duty of a director to avoid conflicts of interest; and
the duty of a director not to accept benefits from third parties.
 

A further provision specifies the civil consequences of a breach by a director of these duties. Yet other provisions require a director to declare an interest in a proposed or existing transaction or arrangement and provide that certain transactions involving directors require the approval of the members of the company. These transactions include:-directors’ long-term service contracts; substantial property transactions; loans and quasi-loans to directors and to persons connected with directors; and certain credit transactions. Further provisions deal with payments to directors for loss of office. Such payments will require approval by members of the company.

Further provisions provide for the ratification of acts of directors of a company and confer power to make provision for the employees of a company when it ceases business or its business is transferred. A company will be required to keep minutes of directors’ meetings for at least ten (10) years from the date of the meeting. Those minutes are to be evidence of proceedings at meeting of company until the contrary is proved.

Further provisions on directors are also contained in Part V of the Companies (General) Regulations, 2015

PART X (sections 213-237) specifies the circumstances under which directors of a company can be disqualified from holding office as such. In particular, a court is empowered to disqualify a persons being convicted for certain specified offences; for fraud or breach of duty committed while company in liquidation or under administration; or on being conviction of offence involving failure to lodge returns or other Registrar.

Courts are now required to disqualify unfit directors of insolvent companies from acting as company directors. In certain circumstances a person will now able to enter into a disqualification undertaking instead of being made subject to a disqualification order. Persons are also now liable to disqualification after a company has been investigated under Part XXX of the Act.

It is an offence for a person to act as a company director while they are undischarged bankrupts. A person disqualified will now be personally liable for a company’s debts if the person acts while disqualified.

The Part also requires a register of disqualification orders to be kept and provides for the disqualification of persons who are subject to foreign restrictions. Such persons will also be personally liable for a company’s debts if the person acts as a director while disqualified.

PART XI (sections 239-242) deals with derivative actions. In particular, it provides for proceedings by members of a company in respect of a cause of action vested in the company and will enable them to seek relief on behalf of the company.

PART XII (Sections 243-254) deals with Company Secretaries. Every public company will be required to have a company secretary, but a private company will not be required to have a secretary unless it has a paid up capital of Kshs. 5 million and above.

Other provisions in this part prescribe their qualifications, duties and the records to be kept by companies with respect to their secretaries.

PART XIII (Sections 255-321) deals with resolutions and meetings of members of companies. In particular, the part sets out requirements for passing ordinary resolutions and special resolutions. A provision is also made in relation to private companies for written resolutions. Members have a right to require directors to convene general meetings in some circumstances at the expense of the company.

Further, the provisions prescribe the procedure for the conduct of general meetings of companies.

The Part also applies the earlier provisions of the Part to meetings of holders of classes of shares and sets out additional requirement for general meetings of public companies. Members of a public company will have power to require the circulation of resolutions for an annual general meeting at the expense of the company.

PART XIV (Sections 322 – 403) this part deals with shares of a company and share capital of a company limited by shares. In particular, share capital will now no longer be possible to convert into stock. It also provides description of nature of shares and their transferability; allotment of shares; payment of allotment and registration of shares of a company.

Further provisions impose restrictions on public companies that wish to allot shares for non-cash consideration. Companies that issue shares at a premium are now required to establish a share premium account and provide for the application of share premiums.

PART XXIII (Sections 570 -582) deals with debentures issued by a company. In particular, the part makes provision for perpetual debentures, enforcement of contracts to subscribe for debentures; keeping company’s register of debentures and rights of debenture holders to inspect the register.

PART XXXI (sections 829-876) continues the offices of the Registrar of Companies, Deputy and Assistant Registrar of Companies and specifies the functions and powers of those officers under require the Registrar to have an official seal; provide for its use; provide for the recording in the Register of Companies of documents lodged with the Registrar for registration; empower the Registrar to impose requirements with respect to lodgement of documents; provide for fees to be paid to the Registrar for the registration of documents; require the Registrar to give public notice of the issue of certificates of incorporation; confer a right to obtain a certificate of incorporation in specified circumstances; will require the Registrar to allocate a unique identifying number to each company; provide for the recording of registered numbers of branches of foreign companies.

Normally documents will be required to be lodged in the English language, but in certain circumstances documents may be lodged with the Registrar in a language other than English subject to the lodgement of a version of the document translated into English.

Other provisions make it an offence to lodge false or misleading documents, or to make false or misleading statements to the Registrar; provide for the enforcement of a company’s lodgement obligations; provide for electronic communications and the publishing of notices by alternative means; and empower the Registrar to make “Registrar’s Rules”.

Part XXXII (sections 877-892) deals with charges created by a company; charges existing on property acquired by a company, and charges in a series of debentures. In particular, the Part imposes an additional registration requirement for commission, allowance or discount in relation to debentures will now require a certificate of registration to be endorsed on debentures; provides for charges created in, or over property located outside Kenya; requires the Registrar of Companies to keep a register of charges created by or in relation to companies; prescribes a deadline for lodging a charge with the Registrar for registration(30 days from the creation of the charge); will require the holder of a floating charge to lodge with Registrar notice of appointment and cessation of appointment of an administrator of the company to which the charge relates.

PART XXXVIII (Sections 996-1005) contains provisions that specifically relate to offences and legal proceedings involving companies. The Part includes-. a provision that prescribes and defines the liability of officers of companies who are “in default” under the various provisions that create offences under the Act; a provision applying that provision to apply to bodies other than companies; a provision enabling proceedings to be taken against unincorporated bodies; and a provision providing for legal professional privilege involving company communications.

Other provisions confer powers to require a company to produce documents for inspection if it is suspected of being involved in the commission of an offence and to obtain a warrant for the search of premises of such a company. Another provision creates the offence of fraudulent trading;

Other provisions will empower the High Court to prohibit payment or transfer of money, financial products or other property; and to grant injunctions in specified circumstances.

A further provision empowers a court to grant relief in certain specified circumstances (where, for example, a company or director acted innocently in relation to a particular matter).

PART XL (sections 1010-1016) provides for the service of documents on a company and on directors, secretaries and others and for addresses for the service of documents. In particular, the Part provides for the making of regulations relating to:-sending or supplying documents or information by a company; and sending or supplying documents or information to a company.

Members of companies and others who provided with an electronic version of a document by a company will be entitled to be provided with a hard copy version.

Other provisions of the Part provide for the authentication of documents sent or supplied by a company and determine when documents and information are taken to have been sent or supplied by a company.

Further provisions are made in Companies (General) Regulations 2015 regarding this part.

PART XLII (clauses 1023-1021) contains supplementary provisions. The Part empowers the Cabinet Secretary (in this case the Attorney General) to make regulations (already made) for purposes of the Act; provides for the repeal of the existing Companies Act and for the revocation of subsidiary legislation made under it; provides for the continuity of the law relating to companies; and empowers the Cabinet Secretary to make savings and transitional regulations consequent on the Act;

The First Schedule prescribes the rules that are to apply for the purpose of determining when a director is connected with a body corporate for purposes of Part IX of the Act.

The Second Schedule contains matters for determining whether a person is fit to be a director of a company.
The Sixth Schedule contains savings and transitional provisions consequent on the repeal of the Companies Act (Cap. 486).