My Family Business Is Growing. Do I Need to Formalise the Board?

No. A Kenyan private company is not legally required to run a formal board. Under the Companies Act, 2015, a private company must have at least one director, and at least one director must be a natural person. Those minimum rules say nothing about independence, committees or board composition. So a family business board is a matter of good practice, not compulsion. That said, the directors’ duties apply from the first day, and the practical case for a formal family business board grows with every new shareholder, lender and senior hire.

What the law requires of a private company board

Section 128 of the Companies Act provides that a private company is required to have at least one director, while a public company is required to have at least two. Section 129 adds that a company must have at least one director who is a natural person. Those are the minimum rules on who sits on the board. Neither section requires directors from outside the family, independent directors or a board committee structure.

The more detailed governance frameworks sit elsewhere. The Capital Markets Authority’s Code of Corporate Governance Practices for Issuers of Securities to the Public, 2015 is addressed, as its title says, to issuers of securities to the public. An ordinary private family company is not in that group. If your articles of association (the company’s constitution) set higher standards, such as a larger board or a quorum rule, those standards bind you because you adopted them.

Duties directors owe even without a formal board

Informal governance does not switch off the law. Sections 142 to 147 of the Companies Act set out the general duties of a director. A director must act within the company’s constitution and use powers only for the purposes for which they were given (section 142), act in the way the director considers, in good faith, would promote the success of the company for the benefit of its members as a whole (section 143), and exercise independent judgment (section 144). A director must also exercise the care, skill and diligence of a reasonably diligent person (section 145), avoid conflicts of interest (section 146), and not accept benefits from third parties (section 147). Section 148 deals with the civil consequences of a breach.

In a family company these duties bite in familiar situations. A brother who is a director and also supplies the company with goods, a parent who draws money out of the company for personal use, or a director who commits the company to a loan without telling the others are all situations where the duties are engaged. Section 151 requires a director who is interested in a proposed or existing transaction with the company to declare the nature and extent of that interest to the other directors. If the declaration was never made and nobody wrote it down, the family is relying on memory to defend the deal.

Records the Act does require

One area is not optional. Section 210 requires a company to ensure that minutes of all proceedings at meetings of its directors are recorded, and to keep the minutes of each directors’ meeting for at least seven years from the date of the meeting. A failure by the company, and by each director in default, is an offence carrying a fine not exceeding KES 500,000. A family business board that meets over lunch and records nothing is therefore not merely informal; it risks falling short of the Act.

Minuting does not require a formal boardroom. Section 262 provides for written resolutions of private companies, which lets a private company document a decision without convening a meeting. The Act excludes some resolutions from the written route, so check the provision before relying on it for a particular decision.

Signs it is time to formalise your family business board

• More than one branch of the family now holds shares, and interests no longer line up neatly.
• A bank, investor or development lender wants to see minutes, resolutions and clear signing authority before it commits funds.
• You are hiring senior non-family managers who need defined authority and clear reporting lines.
• One person can no longer track every decision the company takes.
• You are thinking about succession and want key decisions on record before a disagreement forces the issue.

What formalising actually involves

It does not have to look like a listed company. In practice it means agreeing who sits on the family business board, which can remain entirely family members, and recording what decisions the board must take and what the managing director may decide alone. It means holding regular meetings and minuting them, using written resolutions for significant decisions instead of verbal understandings, and recording declarations of interest.

Many families also add a shareholders’ agreement. That is a private contract between the shareholders, so it is a choice and not a statutory filing, but it is the usual place to deal with how disputes are resolved, how shares may be transferred and how an exit works. Where the family wants to hold the shares through a trust, our guide to holding family company shares through a trust explains the options.

None of this requires giving up control or admitting outsiders. It means the decisions your family already makes are written down in a way that will stand up if a bank, an investor, a court or the next generation needs to rely on them.