Rework the Companies Bill to give it futuristic outlook

The Companies Bill, 2010 is yet to be passed into law. Currently every incorporated company is regulated by the Companies Act Cap 486 which is a pre-colonial law made in 1948.

The current law may be a bit archaic as it does not consider changes in the business environment over a period of over 60 years. It also contains many provisions which are irrelevant in today’s business environment.

Sixty years is a long period and a lot of changes have occurred which the current law does not consider. The proposed law is less detailed as it omits many provisions of the current law.

It however has many new provisions which may be more relevant to companies. Some of the changes are highlighted in this article.

The old law provided that a company had to have a minimum of two members before incorporation. The proposed law however allows for one member companies.

The proposed law has also greatly simplified the memorandum and articles of association. The memorandum and articles are the constitution of the company and they provide for the purpose of the company and the manner in which it should be governed.

The old format of memorandum and articles contained a lot of unnecessary provisions and made understanding the documents very difficult.

However one of the biggest changes comes in the clause that provides that every company should have a website. The proposed law provides for what information can be posted on the website.

These include all company communication, notices, resolutions, audit reports and any other communication relevant to members.

The proposed law considers technological changes in the business environment in the manner in which company information can be disseminated. It recognises electronic information and any information posted on the website.

The current law states that all company notices must be in hard copy meaning that the notices must be either delivered or posted. In today’s business environment it is impractical as most businesses disseminate information electronically.

Besides, with globalisation it becomes increasingly impractical to rely on delivery or postage of hard copies.

In my view, this amendment is very necessary, however it should not be so rigid as to only recognise electronic communication and hard copies.

Technology changes fast and perhaps in the next few years there may be other forms of communication that do not fall under either classification.

Therefore a wider provision should be made for dissemination of information and the provision should be futuristic and not only consider the current environment.

Under the proposed law, a lot more detail has been accorded to naming of companies such that the Minister has power to call for a change of name where the company’s name is similar to another.

Furthermore, if the company name is likely to deceive the public as to the nature of the company’s activities then it can be amended. For example X Real Estate Limited would not be allowed for a company that is not engaged in real estate.

However the biggest change has been in corporate governance. The Bill contains a lot of detailed provisions on governance.

For the first time, a directors’ fiduciary duty to the company has been legislated and in a lot of detail. Prior to this, directors’ fiduciary duty has been governed by common law and not so much statutory law.

The governance requirements for small and larger companies have been distinguished. For example small companies do not have to prepare audits as opposed to the larger companies which have to file detailed information including employee information as part of reporting requirements.

The auditors have also been given a statutory right to access information from the company.

The proposed law, considers current financial transactions and legislates them.

In my view, the current companies law needs to be repealed and replaced with a more suitable law. The Bill meets most of the needs of a modern company, however should be looked into carefully to give it a more futuristic outlook.

Mputhia is the Founder of C M Advocates. [email protected]. www.cmadvocates.co.ke. @cm_advocates