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THE NEW COMPANIES ACT,
VOLUME-1; THE SINGLE MEMBER COMPANY
The Companies Bill 2010, was passed into law on 12th September 2015 by the President.
The new Act repeals the Companies Act Cap 486 which is a pre-colonial law made
in 1948.
Over the years there have been various attempts to change the repealed company
act. This was because ways and modes of doing business have tremendously
changed in the last 6 decades. Technology has become integrated in our businesses,
there is a culture change where more people have entrepreneurial ambitions and in
time Kenya has been named the best emerging economy to invest in due to
accelerated infrastructure development and a stable political and macroeconomic
environment. There was therefore need to modernise Kenya's business sector so as to
make it easier for local and foreign entities to invest in Kenya.
The new Act is therefore aimed at revolutionising business in the country by removing
various pre-existing legislative stumbling blocks to doing business in Kenya. It is
intended to reflect the prevailing circumstances of carrying on business – including
modern patterns of regulation and ownership.
It codifies common law principles – in particular, the indoor management rule and
common law fiduciary duties of directors. Along with this, it modernises company law
by recognising electronic communication and the use of websites and other
electronic avenues for a company’s communications. The new Act has also
increased the penalties and fines for offences relating to companies.
It is key to note that the new Act is not yet operational. Its provisions only become
operational on the date which the Act is published in the Kenyan Gazette.
We shall send you piecemeal articles noting that the Act has over 1,000 sections and
is incredibly detailed (bulky) and comprehensive.

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KEY HIGHLIGHTS OF THE NEW ACT
A. TYPES OF COMPANIES; PART II
The Act maintains the types of companies as was described in the repealed Act;
a) Companies Limited by Shares
b) Companies Limited by guarantees- this company does not have a share
capital but by undertakings on contributions that will be made upon liquidation
c) Unlimited Companies- there is no limit on the liability of its members
d) Private company- Can be any of (a), (b) or (c) with a limit of 50 members and
shares are not freely transferable
e) Public company-there is no limit as to membership and the public is invited to
purchase its (subscribe for) shares
B. FORMATION OF A COMPANY
Previously, Section 4 (1) of the Companies Act Cap 486 of the Laws of Kenya required
a minimum of seven persons and two persons for the formation of a public and private
company, respectively.
With the new Act, private companies should have at least one director, whereas
public companies must have at least two directors, who must be natural persons and
over the age of 18 (and not 21 as was set out in the repealed Act).
The focus of this volume will be on the introduction of sole member companies which
is the most drastic change in the Act. However before I delve into that it is key to
differentiate between a member and a director for ease of understanding this article.
Difference between members and Directors
In Kenya, members of a company are commonly referred to as directors of a
company. However in law there is a difference between members and directors of a
company.
Members of a company are the persons who subscribe to the memorandum and
articles (memarts) of a company for purposes of its registration. (Reference is made
to the last page of the memarts which states the name, address and shares allocated

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to each member). A director is one who is elected or appointed by the members to
run the affairs of a company. We shall however look at the law on directors in the
latter volumes.
C. THE SINGLE MEMBER COMPANY
i. Features of a sole member company
The new Act, has introduced an exciting concept referred to as the single/sole
member company for private companies. This means a single entrepreneur can now
incorporate a private company as a sole member and director, and gain the benefits
that come with a company.
Initially, sole entrepreneurs were sentenced to operate as a sole proprietorship or look
for family members or friends to gain the minimum number of two members for
purposes of incorporating a company! It explains why a lot of indigenous successful
companies are family run.
ii. Quorum
Interestingly, the sole member/director will constitute quorum in the general meetings.
The sole member will be required to provide the company with details of the decisions
from a general meeting, unless they are written resolutions.
iii. Capacity to contract
A sole member/director also has capacity to enter into a contract under Section 194
of the Act. However such contract is only valid if the terms of the contract are
 Set out in writing in a memorandum (agreement)
 Recorded in the first meeting of the directors following the making of the
contract (even if the terms of a contract are not in writing, the directors can
adopt and ratify it)

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iv. Validity of unprocedural decisions made by sole members
If a sole member/director makes a decision that ought to have been taken at a
general meeting and should have been part of a written resolution, the decision
shall not be invalidated because of the skip on procedure. The decision shall
remain valid and binding.
This is meant to cure the mischief of sole member/directors making decision on
behalf of the company and the company directors reneging on it on the basis of
process yet a third party has relied on the decision relayed by the sole
member/director.
v. Perpetual succession of sole member company
The question that will obviously form the subject to a lot of debate will be the issue
of perpetual succession in the sole member company. The question is, does
perpetual succession apply to single member companies? Yes it does!
Section 2 of the new Act states that one or more persons are enabled to
incorporate a company with perpetual succession. This means that even upon the
death of the sole member, the company will remain as a going concern and the
death of the member will not affect the life of the company.
This is a great advantage to sole entrepreneurs whose business would cease to
operate or exist upon their death in sole proprietorship. Further, while initially upon
the death of the sole proprietor, creditors would pursue the estate of the
deceased for the debt, in this case it is the company that will be responsible for
the debt or liability, which liability is limited by shares or guarantee.

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vi. Change of number of members
There are no restrictions on increasing the number of members to more than one
or reducing the number of members to one, other than the company ensuring that
the additional member/s details are entered in its register of members.
vii. Passing of resolutions
A sole member company can only pass an ordinary or special resolution as a
written resolution. This is different from companies with two or more members which
have the option of passing resolutions in writing or at a meeting of the members.
While initially resolutions had to be witnessed or executed by the company
secretary that is not a mandatory requirement considering that a company is only
required to have a company secretary if it has a paid up capital of Kshs.
5,000,000.00 or more.
CONCLUSION
As stated earlier sole entrepreneurs will be the biggest gainers from the Act as they will
gain the benefits accruing from a limited liability company with the freedom of sole
proprietorship.
While the law protects parties that contract with single member companies under
Section 319 by validating decisions made without due procedure by sole
member/director companies, there is still need for subsidiary legislation
Businesses may be apprehensive in dealing with sole member companies particularly
because of the issue of perpetuity of the business upon the death of the sole
member/director. While the law states that a single member company has the benefit
of perpetual succession, there may be apparent risks upon the death of a sole
member/director such as;

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a) Where the sole member is the sole director, who will run the company upon his
death?
b) In the event that the sole member/director dies while the company is in debt,
whose responsibility is it to ensure that the debt is paid up?
Therefore while this concept is exciting to sole entrepreneurs and the estate of the
deceased, as the law protects it through limited liability, the law has not endeavoured
to protect parties such as banks, debtors, suppliers etc that would transact with the
single member company.
To tread on caution, I would be recommend that parties transacting with single
member companies, ensure that such companies have other directors as opposed
to where the sole member is the sole director. This ensures that upon the death of the
sole member, the directors of the company can still run the business.
PREPARED BY STELLA W. MURAGURI
LITIGATION PARTNER
MULANYA & MAONDO ADVOCATES
For any queries contact smuraguri@lawpractice.co.ke or maondo@lawpractice.co.ke
NEXT VOLUME; OBJECTS OF A COMPANY & FUDUCIARY DUTIES OF DIRECTORS