How to Change Company Directors in Kenya: A Detailed Process

Changing directors in a Kenyan company involves legal and procedural steps to ensure compliance with the Companies Act, 2015. Directors may be replaced for various reasons such as resignation, removal, or disqualification. This guide will walk you through the key steps involved in making these changes.

Reasons for Changing Directors

There are several reasons why a company might want to change its directors, including:

1. Resignation: A director may voluntarily resign from their position.
2. Disqualification: Directors may be disqualified for legal reasons such as bankruptcy, fraud, or criminal convictions.
3. Removal by Shareholders: Directors can be removed by shareholders through a resolution in accordance with the company’s articles of association and the Companies Act.
4. Retirement: In some cases, directors may retire due to age or as mandated by the company’s governance policies.

Steps for Changing Company Directors

1. Board Resolution

• Initiating Change: The process begins with a board meeting where the proposed change is discussed. A resolution must be passed by the board to either remove or appoint a director.
• Drafting Minutes: Minutes of the board meeting must be recorded, outlining the decision made regarding the directorship change.

2. Notify the Registrar of Companies

After the board resolution, the company must notify the Registrar of Companies of the change. This can be done by filing the necessary forms through the eCitizen platform, which is used for official business registration matters in Kenya.

• Form CR6: This form is filed to notify the removal of a director.
• Form CR7: This form is filed to notify the appointment of a new director.

The company must submit these forms within 14 days of the change, along with the appropriate filing fees.

3. Update Company Records

The company’s internal records, including the company register, must be updated to reflect the change in directorship. This step is essential for maintaining the accuracy of the company’s governance documents.

4. Communicate with Stakeholders

Once the Registrar has confirmed the directorship change, the company should notify key stakeholders, such as shareholders, employees, and business partners. This ensures transparency and proper governance.

5. Tax and Compliance Considerations

Ensure that the changes are communicated to relevant tax and regulatory bodies, especially if the outgoing or incoming director was an authorized signatory for tax or other compliance matters. If the director was involved in tax filings or held a position of responsibility in regulatory compliance, this change must be registered with the Kenya Revenue Authority (KRA) or other applicable authorities.

Legal Considerations

Removal of Directors

If a company decides to remove a director, the process is more complex and must comply with legal requirements. Under the Companies Act, 2015, a director can only be removed by an ordinary resolution at a general meeting.

Steps include:

1. Notice to the Director: The director must be given a minimum of 28 days’ notice before the meeting to remove them is held.
2. Special Meeting: Shareholders must be notified of the meeting where the removal will be discussed. The director has a right to make a representation at this meeting.
3. Vote: A vote is taken, and if the majority of shareholders agree, the director is removed. This decision is then communicated to the Registrar.

Resignation of Directors

For a voluntary resignation:

1. The director must issue a formal resignation letter to the company.
2. A board resolution accepting the resignation is passed, and the necessary forms (CR6) are filed with the Registrar.

Shareholders’ Role in Director Changes

In some instances, shareholders may request the removal of a director. Shareholders holding a majority of shares may call for a special resolution to remove a director under specific conditions outlined in the company’s articles of association or the Companies Act.

Process for Appointing New Directors

The process for appointing new directors is equally straightforward but involves some additional steps to ensure the appointee is qualified and compliant with the law.

1. Eligibility Check: The company should confirm that the proposed director is eligible to hold office. They must not be disqualified by law (e.g., undischarged bankrupts cannot serve as directors).
2. Board Approval: A board meeting must be held to discuss the appointment, and a resolution must be passed. The new director’s personal details must be recorded in the company register.
3. Form CR7 Filing: The appointment must be officially registered by filing Form CR7 with the Registrar of Companies through the eCitizen platform. This must be done within 14 days of the appointment.
4. Induction and Onboarding: The newly appointed director should be onboarded and made familiar with the company’s operations, policies, and governance structures. This step ensures they can effectively contribute to the company’s management.

Consequences of Not Complying with the Change Process

Failure to follow the correct procedures for changing directors can have serious consequences. The company may face penalties for failing to notify the Registrar of changes within the required timeframe. Additionally, decisions made by the improperly appointed or removed director may be legally challenged, leading to potential financial and reputational harm to the company.

Summary

The process of changing directors in a Kenyan company requires careful planning and compliance with legal requirements. By following the steps outlined above, companies can ensure a smooth transition in their management teams while maintaining compliance with the Companies Act, 2015. It is also recommended to seek legal advice when undertaking this process to avoid any potential pitfalls or legal challenges.