Corporate governance in Kenya is often discussed as if it were exclusively a listed-company problem, a matter of board committees, independent directors, and disclosure filings for businesses trading on the Nairobi Securities Exchange. That framing misses something important: the Companies Act, 2015 imposes binding governance duties on every company’s directors, private or public, listed or not, and a private company that ignores those duties because “the governance code doesn’t apply to us” is confusing the absence of an extra layer of regulation with the absence of any regulation at all.
The statutory floor that applies to every company
Sections 143 to 149 of the Companies Act, 2015 set out seven general duties that every director of every Kenyan company owes, regardless of whether the company has a single shareholder or thousands. A director must act in the way the director considers, in good faith, most likely to promote the success of the company for the benefit of its members as a whole, exercise independent judgement, exercise reasonable care, skill, and diligence, avoid situations of conflict with the company’s interests, and not accept benefits from third parties conferred by reason of being a director. Section 148 makes clear that breach of these duties has the same civil consequences as if they were fiduciary or common law duties owed directly to the company, meaning the company, and in some circumstances its liquidator or administrator, can pursue a director personally for breach. In practice, that enforcement usually runs through a derivative claim brought by a shareholder on the company’s behalf under Part XI of the Act; as the High Court explained in Ghelani Metals Limited & 3 others v Elesh Ghelani Natwarlal & another, a derivative action is the mechanism that allows a shareholder to litigate on the company’s behalf against an insider whose actions have injured it, precisely because the company cannot practically sue through the same directors accused of the wrongdoing.
Sections 151 to 154 add a duty to declare any interest, direct or indirect, in a proposed or existing transaction or arrangement with the company, whether by individual notice or by a standing general notice where the interest is one the director expects to have on an ongoing basis. A single-director private company is not exempt from this: section 154 specifically addresses how a sole director makes the required declaration by recording it in writing.
These duties are not aspirational guidance. They are directly enforceable, and unlike listed-company governance codes, there is no “apply or explain” option: a private company director either complies or is in breach, with the civil consequences that follow from that.
Where the listed-company code stops applying, and why that is not the same as no governance
The Code of Corporate Governance Practices for Issuers of Securities to the Public, 2015, issued by the Capital Markets Authority, applies to companies that issue debt or equity securities to the public, whether or not they are actually listed on an exchange. It requires, among other things, that at least a third of the board be independent non-executive directors, that the board maintain a clear separation between its oversight role and management’s operational role, and that the company report annually on how it has applied the Code’s principles, with the option to explain rather than comply where a specific recommendation genuinely does not fit the business.
None of this applies to an ordinary private company. The Companies Act does not prescribe board composition, does not require a minimum proportion of independent directors, and does not impose the Code’s disclosure regime on a company that has not issued securities to the public. A private company is genuinely free to structure its board as it sees fit, subject only to the general director’s duties described above and to whatever the company’s own articles of association require.
The practical risk this creates is not that private companies face heavier regulation than they realise; it is the opposite. Because there is no external code prescribing board structure or independent oversight, a private company’s governance quality depends entirely on what the founders and shareholders choose to build into their own articles and shareholder agreements, and on whether the statutory duties in sections 143 to 149 are actually observed in substance rather than treated as boilerplate. A family business or an investor-backed private company with no governance framework beyond the statutory minimum is not committing any breach, but it is also not protected by any of the structural safeguards, board balance, conflict oversight, disclosure discipline, that the listed-company code was designed to provide.
What private company governance should look like in practice
Sensible governance for a private company that wants to avoid disputes and protect its directors typically goes beyond the bare statutory minimum without adopting the full CMA Code. That means articles of association or a shareholders’ agreement that specify quorum and voting thresholds for major decisions, a clear related-party transaction approval process even though the Companies Act’s formal approval requirements for substantial property transactions and loans to directors only bite above certain thresholds, board minutes that actually record how conflicts under section 146 were identified and managed rather than leaving the record silent, and, for family or multi-generational businesses in particular, a written framework for how ownership and board seats pass between generations before a succession event forces the question. None of this is legally mandatory. All of it materially reduces the risk that a dispute between shareholders or directors ends up being litigated over facts nobody wrote down at the time.
How We Can Help
Clay & Associates Advocates advises private company boards and shareholders on governance structures, drafts and reviews articles of association and shareholder agreements to build in the safeguards the statutory minimum does not require, and advises directors on their duties under sections 143 to 154 of the Companies Act, including where a conflict of interest or related-party transaction needs to be properly declared and approved. Our guide to board resolutions and corporate secretarial compliance covers the record-keeping side of the same governance obligations. Contact our corporate and commercial practice to review your company’s current governance arrangements or to put a framework in place before a dispute forces the issue.
Sources: Companies Act, 2015, sections 143 to 154; Code of Corporate Governance Practices for Issuers of Securities to the Public, 2015 (Capital Markets Authority); Ghelani Metals Limited & 3 others v Elesh Ghelani Natwarlal & another, Civil Suit 102 of 2017, [2017] KEHC 4629 (KLR).
Frequently asked questions
Do the Companies Act’s director duties apply to a private company with only one director?
Yes. Sections 143 to 149 apply to every director of every company, and section 154 specifically addresses how a sole director declares an interest in a transaction.
Does the CMA Code of Corporate Governance apply to private companies?
No. It applies only to companies that issue debt or equity securities to the public, whether or not they are listed on an exchange. A private company that has not issued public securities is not subject to it.
Is a private company required to have independent directors?
No. The Companies Act does not prescribe board composition for private companies, and the CMA Code’s one-third independent director requirement applies only to public issuers of securities.
What happens if a director breaches their statutory duty?
Section 148 of the Companies Act applies the same civil consequences as would apply if the duty were owed as a fiduciary or common law duty, meaning the company can pursue the director personally for the breach.
