Foreign investors setting up a restaurant, shop or service business in Kenya are often told they need a Kenyan shareholder. Sometimes a local friend, employee or business contact is then registered as a shareholder on the understanding that the shares are really held for the foreign investor. That person is a nominee shareholder. It is lawful in Kenya, but since the beneficial ownership rules were tightened it must be disclosed, and an undisclosed or badly documented arrangement creates risks that usually surface at the worst moment: when the investor wants to sell, raise money or remove the partner.
Check whether you need a Kenyan shareholder at all
Before giving away equity, identify the specific licence or contract that supposedly requires local ownership and read the condition itself. Many licences that a consumer-facing business needs, such as county trade and health permits or a tourism licence, are concerned with the premises, the people running them and the business activity, not with the nationality of the shareholders. Where a licence does impose a residence or citizenship condition, it often attaches to the licensee or its directors rather than to the shareholders. For example, the Alcoholic Drinks Control Act, 2010 makes a person who is not resident in Kenya ineligible for a retail liquor licence (section 13(1)(d)) and allows a licence to a company to be refused if any director would not qualify individually (section 16(1)). That is a board composition problem, and it is solved by appointing a suitable resident director, not by handing shares to a nominee.
Our article on resident directors, nominee directors and work permits explains the options for staffing the board of a foreign-owned company.
What the law now requires of a nominee shareholder
The Companies Act, 2015 no longer allows a nominee to sit silently on the register. At incorporation, the statement of capital and initial shareholdings must state whether any shareholder is a nominee and give the particulars of the nominator (section 14). The register of members must record whether a member is a nominee shareholder and the dates on which a person became or ceased to be one (section 93).
The Companies (Beneficial Ownership Information) Regulations, 2020 go further. Regulation 4A requires a person acting as a nominee shareholder, “whether formally or informally”, to disclose that status to the company and to give the particulars of the nominator. The company must note the nominee in its register of nominees and enter the nominator, or the beneficial owners of a corporate nominator, in its register of beneficial owners.
Under regulation 3, a beneficial owner includes a natural person who directly or indirectly holds at least ten percent of the issued shares or voting rights, holds a right to appoint or remove a majority of the board, or exercises significant influence or control over the company. A foreign investor whose shares are held by a Kenyan nominee will almost always meet one of these tests.
Section 93A of the Companies Act requires every company to keep a register of beneficial owners, lodge it with the Registrar and lodge any amendment within fourteen days (thirty days for a listed company). Late lodging attracts an administrative penalty of two thousand shillings for the company and each officer in default, plus one hundred shillings for each further day of default.
The risks of an undisclosed or informal arrangement
Restrictions on the shares. Where a company believes a person has failed to provide beneficial ownership information, the Regulations allow it to issue a warning notice and then a restriction on the relevant interest (regulations 5 and 7). While a restriction is in place, any transfer of the interest is void, no rights are exercisable in respect of it, no further shares may be issued in right of it and no payment, including a dividend, may be made on it (regulation 9). An investor who cannot sell, vote or receive dividends has lost most of what made the investment worth having.
The nominee is the legal member. The person on the register holds the legal title and the statutory rights of a member. That includes the right to apply to court for relief on the ground that the company’s affairs are being conducted in a manner that is oppressive or unfairly prejudicial to their interests (section 780 of the Companies Act). The court’s powers include ordering the purchase of a member’s shares by other members or by the company (section 782(2)(e)). A nominee who falls out with the investor can use these rights as leverage, and an undocumented “understanding” is a weak answer in court. Our article on shareholder disputes and minority oppression claims explains how these petitions work.
Inconsistent disclosures. Information given to the Registrar, banks, licensing bodies and tax authorities must be consistent. In practice, banks ask for beneficial ownership information when opening accounts and will often decline or freeze an account where the register and the real ownership do not match. A licence or permit obtained on the basis of a misleading ownership picture is vulnerable when the true position comes out.
Exit and fundraising. Any buyer or investor will carry out due diligence on the share register and the beneficial ownership filings. A nominee arrangement that was never disclosed, or that has no signed trust document, has to be regularised before completion, and the nominee’s co-operation is needed to do it.
Better structures
If the Kenyan partner is genuinely contributing capital, skills, premises or relationships, give them a genuine minority stake and record the terms in a shareholder agreement with matching articles: reserved matters, transfer restrictions, a deadlock mechanism and a clear exit route. Our guide to shareholder agreements and articles of association explains how the two documents interact.
If the partner’s role is operational, reward it through an employment or services contract, a profit-linked bonus, or a share option that vests over time. If what is actually needed is a resident person on the board, appoint a resident director, with a clear director service agreement.
If a nominee holding is still the right answer, document it properly: a signed declaration of trust, an undated share transfer form held by the investor, a power of attorney over voting, and full disclosure under section 93 and regulation 4A. A disclosed nominee arrangement is a lawful tool. An undisclosed one is a liability.
How We Can Help
Clay & Associates Advocates advises foreign investors on structuring Kenyan companies with local partners, including nominee arrangements, beneficial ownership filings and shareholder agreements. We also review agreements already drafted between investors and their Kenyan partners. Contact our corporate and commercial team to discuss your structure before shares are issued.
Sources: Companies Act, 2015, sections 14, 93, 93A, 780 and 782; Companies (Beneficial Ownership Information) Regulations, 2020, regulations 3, 4A, 5, 7 and 9; Alcoholic Drinks Control Act, 2010, sections 13 and 16.
Frequently asked questions
Is it illegal to hold shares through a nominee in Kenya?
No. Nominee shareholding is lawful, but the nominee must disclose their status and the nominator to the company, and the company must record it in its registers and in its beneficial ownership filings with the Registrar.
Can the nominee refuse to transfer the shares back?
They can try. A signed declaration of trust and a pre-signed transfer form make the investor’s position much stronger, but if the nominee resists, the investor may still need a court order. An undocumented arrangement is far harder to enforce.
Do I need a Kenyan shareholder to open a restaurant?
Not as a general rule. Check the actual conditions of each licence you need. Where residence matters, as with a retail liquor licence, the condition usually applies to the licensee and its directors, which a resident director can satisfy.
What happens if we never disclosed the nominee?
Regularise it now. The company should obtain the nominee’s disclosure, update its register of members and register of beneficial owners, and lodge the amendment with the Registrar. Late filing penalties are modest compared with the cost of a disputed holding.
Need advice on your own matter?
Tell us what you are dealing with. You will know what it involves and what it costs before you commit.
This article is general information on Kenyan law as at its publication date, not legal advice. Reading it does not create an advocate and client relationship.
