Change and removal of a Company Director for Limited Companies in Kenya

A company is an entity formed by a group of shareholders who appoint directors to run the company operations on their behalf. There are two general classifications of companies in Kenya as per the new Companies Act 2015, Private Companies and Public Company. One of the advantages of a company is perpetual succession. A company can change its ownership by changing company shareholders and company directors. In this article, we will dive in and explain the process for the change or removal of a private company director.

1. An Overview of Companies Structure
2. The Role of Company Directors
3. Circumstances under which Company Directors may be removed
4. Requirements for Change of Company Directors
5. Process for Change of Company Directors

An Overview of Companies Structure

Private companies as per the Companies Act (2015) Kenya are companies with a maximum of fifty (50) shareholders, restrict members from the transfer of shares, prohibit invitations to the public to subscribe for shares or debentures of the company and certificate of incorporation states that it is a private company.

Private companies are popular vehicles for conducting business and have been embraced by a majority person who comes together and registers private companies to conduct business.

In Kenya, private companies are registered by the Registrar of Companies, and these services can be accessed online from the ecitizen platform.  However, it’s advisable you get an expert to give professional advice on the process of incorporating the company.

For Private companies there is no minimum number of persons required to register the company, the law only put a maximum of fifty persons. The shareholders in a private company appoint the directors to run the companies.

Often at the beginning of most start-ups and businesses, as they incorporate, they register the private companies and allocate equal responsibilities of directorship and shareholding. They later apply for changes in the ownership structure where a director may be removed or resigns.

Role of Company Directors

Company directors are agents of the company and they represent the company shareholders. A company board of directors make decisions and their resolutions are binding for the company.

The company directors play a major role in the operations and running of the company. Any transaction or engagement for the company has to be approved by the directors. The company directors, therefore, have to work with a common agenda to achieve the company’s vision. Where they fail to work in harmony they can pass a resolution to remove non-cooperative directors or where they want to bring on board other directors they can bring on board new directors

Change of Company Directors

There are several circumstances that can lead to a change in the company directors. This include:

• If the existing director resigns by notice written to the company
• If a director is declared bankrupt
• If a director is found to be of unsound mind
• If a director dies
• is removed from office through an ordinary resolution.       

There are other circumstances that can make a company change its company directors. Through an ordinary or special resolution, a company director can be removed and a majority of the board of directors votes to remove a director.

Often as we highlighted when incorporating companies, most people forming companies give equal contribution and responsibility and at times later disagreements arise amongst the directors. This is caused mainly by circumstances such as conflict of interest where some directors run parallel businesses that compete with the company. In other cases, some don’t participate in management or meetings of the company holding it hostage where their input is required.

A company may also change its directorship to improve its management and business performance, by appointing directors with the techniques and skills required for the operations of the company.

Another scenario that would lead to change or removal of directors is when a company want to have a diverse board composition.

For a company to be registered to Access Government Procurement Opportunities (AGPO) certificate to access the 30 % reserved tenders for AGPO certificate holders, a company must have 70% Directors shareholding in either Youth for AGPO-Youth Certification, Women for AGPO-Women and Person with Disabilities for AGPO-PWD.

Requirements for removal and Change of Company Directors

The removal and change of company directors of a registered company in Kenya is a process that must the due process.

Depending on the circumstances that lead to the removal of a company director the following are required:

1. Resignation letter of a Resigning Director
2. Special or Ordinary resolutions passed
3. Minutes of the meeting
4. Sworn Affidavit by the resigning director.

Process for Change of Company Directors

When a company resolve to remove a company director a resolution must be filed with the company registrar for the removal to be processed.

The registrar of companies reviews all the documents submitted to confirm the removal of the director followed due process and it is not a form of ‘boardroom coup’.

The laid procedure must be followed as the registrar cannot process the striking of a director from a company register without also confirming with the resigning director. An email is usually sent to resigning directors for them to confirm the veracity of an application for their removal from the company.

Where the directors being removed also held some shares and they are being transferred to another person or an incoming director, a transfer deed franked with a Stamp Duty stamp from the Ministry of Lands must be produced. This confirms that Stamp duty tax has been paid on the transfer of the shares being transferred.

The stamp duty tax to be paid is assessed based on the valuation of the shares being transferred, this valuation is done on Form D, which is done by a Certified Public Accountant or an Auditor. Once the removal of a director in a company is processed by the company registrar a new CR12 document can be obtained showing the new company directors after the change

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Conclusion

The removal of a company director especially where the director is a director’s shareholder must follow due process for the registrar of companies to process it. The change of the directors to have a director’s shareholder removed from a company register requires the exiting director to have a resignation letter, and an affidavit and for the transfer of shares, stamp duty has to be paid.

Companies initiated the changes in directorship for different reasons, at times through a special resolution to remove non-cooperating directors or through an ordinary resolution to bring on board directors with technical expertise to propel the company vision and missions.

Having any queries on the process for a change of company directors get in touch with us at info@anzianoconsultants.com