“K ampuni·Yangu:”·Complexity·of·

the·Kenyan·Single·Shareholder·
Company··in·the·Life·and·Death·of·
the·Owner

L.·Obur a·Aloo*·and·Dr·K·Wyne·
Mutuma**

1. Introduction

The single shareholder company was introduced into Kenya by the

Companies Act, 2015.353 The reality was that, even before the enactment
of the Companies Act 2015, many Kenyan companies were de facto single
member companies.354 The Companies Act 2015 therefore gave de jure
support to the de facto position. Many of the incorporated companies in
Kenya were in reality single person entities, which Justice Luka Kimaru
in the case of Jane Gathoni Muraya-Kanyotu v Mary Wanjiku Kanyotu
& 9 others described as “Kampuni Yangu”.355 The judge, describing how
the deceased in a succession dispute had conducted his affairs, noted:

…it was evident that the deceased owned a substantial part of

his properties through limited liabilities companies. From the
structure of the shareholding, it was apparent that the deceased,
for all intent and purposes, was the only shareholder of the said
companies. The shareholding of the said companies were such

353. * Lecturer University of Nairobi School of Law ⃰ ⃰ Senior Lecturer University of Nairobi
School of Law The Companies Act, 2015.
354. Using devices such as holding of shares in trust and having nominee shareholders, persons
intent on having full control of private companies were still able to do so.
355. Jane Gathoni Muraya-Kanyotu v Mary Wanjiku Kanyotu & 9others [2013] eKLR “Kampuni
Yangu” is Kiswahili for “My Company”.
ICS Governance Journal

that one limited liability company where the deceased was a

majority shareholder, owned a single share in another company
where the deceased was also a majority shareholder. A case in
point is Kawakanja Ltd where the deceased owned 999 shares
while a company known as Tropical Registrars Limited owned
1 share. The total share capital of the company was 1,000
shares. This court would not be off the mark if it holds that the
companies that the deceased incorporated were in fact alter-
egos of the deceased. The companies qualified to be referred to
in the Kenyan speak as “Kampuni yangu” i.e. the companies
could not be separated or be considered as distinct entities from
the incorporators. In this regard, Kawakanja Ltd and Kangaita
Coffee Estate Ltd were “Kampuni yangu” of the deceased.
This does not mean that this court is unaware of the separate
legal personalities of the companies and their incorporators.
Far from it.356

The deceased running Kampuni Yangu in the case Justice Kimaru was
dealing with, was much more sophisticated than the average single
member company owner. Given the complexity of the Companies Act,
2015, does the unsophisticated Kampuni Yangu owner know the extent
of her/his obligations under the Act and is there a need to rethink the
structure of the Act in order to accommodate the reality of the average
Kampuni Yangu owner? What are the corporate governance issues that
arise in respect of the running of Kampuni Yangu? Does the Kampuni
Yangu owner give thought to what happens in the immediate aftermath
of the owner’s death?

356. Jane Gathoni Muraya-Kanyotu v Mary Wanjiku Kanyotu & 9others [2013] eKLR.

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These questions are important due to the role played by the small
business organization in Kenya. The small and medium enterprises are
very significant in Kenya’s national development.357 The importance of
the informal sector, so called “jua kali” in Kenya, cannot be ignored.
Rwandese scholar, David Himbara, argued in the 1990s that the so
called African entrepreneurs who emerged during the Africanization-
Kenyanization programs of the 1960s and 70s and who occupy centre
stage in writing about Kenyan enterprises owe their ‘success’ to their
special relationship with the state and “…remain, at best, a bourgeoisie-
in-formation, with the informal sector, or jua kali, serving as the real
training ground for potential African industrialists.”358

The Government of Kenya has recognized the significance of the

informal SME sector. This is evidenced from the policy position, for
example, in the 1986 Sessional Paper on Economic Management for
Renewed Growth,359 the 1989 Strategy for Small Enterprise Development
in Kenya: Towards the Year 2000360 and culminating in the Sessional
Paper No 2 of 1992 on Small Enterprise and Jua Kali Development361 and
its 2005 revision.362 Yet despite the policy position, until about the turn
of the millennium, the growth of the Kenyan informal sector has been
out of its own initiative and momentum and the growth has been in total
defiance of the legal regime.363

357. See Sessional Paper No 2 of 2005 on Development of Small and Medium Enterprises for
Wealth and Employment Creation for Poverty Reduction; and Sessional Paper No 2 of 1992 on
Small Enterprises and Jua Kali Development in Kenya.
358. Himbara, David. “Domestic Capitalists and the State in Kenya” in
Berman, B.J. & Leys. C. (ed) African Capitalists in African Development.
London, Lynne Rienner Publishers, 1994. p69-91 at p. 69 .
359. Sessional Paper on Economic Management for Renewed Growth 1986.
360. Strategy for Small Enterprise Development in Kenya: Towards the Year 2000, 1989.
361. Sessional Paper No 2 of 1992 on Small Enterprises and Jua Kali Development in Kenya .
362. Sessional Paper No 2 of 2005 on Development of Small and Medium Enterprises for
Wealth and Employment Creation for Poverty Reduction.
363. “Report of the Task Force Appointed to Review the Law Relating to Companies,
Investments, Partnerships and Insolvency” Chaired by J.N. King’arui Presented to Hon S. Amos
Wako AG of Kenya 2 December 1999 p. 94.

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Over the last decade, reforms in the area of business organization law
have, in some respects, been targeted at changing the position from
where the law was not deliberately designed to assist the small enterprises
to a more facilitative law. The changes include the enactment of the
Companies Act, 2015 which makes provision for the single shareholder
company, the revision of the Partnership Act364 and the enactment of the
Limited Liability Partnership Act.365 The Companies Act, 2015 enacted
legislation permitting, for the first time in Kenya, the single shareholder
company. However, including the provisions within the wider Companies
Act may have some drawbacks during the running of the company and at
the demise of the shareholder.

Despite or because of the novelty of the single member company, there

has been little focused attention in Kenya on the legal issues in respect of
this business form. One has therefore to look elsewhere in Africa to find
review of this business form. The available writing can be divided into
consideration of single member company ex post and ex ante enactment
of legislation. Assamen Mekonen Tessema considers single member
companies in England, France and Germany and whether Ethiopia
should adopt the single member company.366 He finds that including
the single member company in Ethiopia would give a wider choice to
traders, avoid sham companies and sleeping shareholders and promote
small and medium enterprises. Although he can be faulted for making
comparisons with western industrialised countries in order to draw his
conclusions, the conclusions appear sound. Chewaks, Jetu Edesa also
considers the single member company for Ethiopia.367 Edesa in his book,
having analysed the history of single member companies and their
business environment in Ethiopia, concludes that the introduction of the

364. Partnership Act No 16 of 2012.

365. Limited Liability Partnership Act No 42 of 2011.
366. Assumna Mekonnen Tesseman “Comparative Single-member Companies of Germany,
France and England: A Recommendation for Ethiopia” 2012.
367. Chewaka, Jeta Edesa Introducing Single Member Companies in Ethiopia: Major
Theoretical and Legal Considerations. Hamburg Anchor Academic Publishing 2016.

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single member company would serve as an attractive business vehicle for

business people in Ethiopia. Nigerian, Peresewi Subai, considers ex post
the adoption of the single member company form in Nigeria. He argues
the single member company reflects the reality of the Nigerian corporate
form. He proposes that a state-based single member regime be adopted
devoid of burdensome and unnecessary formalities.368 Makey Robert
writes an ex post analysis of the single member company in Tanzania.369
He considers the effect of the 2012 amendments to Tanzanian law that
introduced the single member companies in Tanzania.370 He argues that
the legislation was a monumental change and suggests that advertising the
legislation and giving it more publicity would have enhanced the effects.
Malaysian researcher, Salah Mohammed Ahmasher, and his colleagues
undertook a survey of single member companies in selected countries in
Africa, America and Australia.371 They find generally that that there are a
number of benefits of the single shareholder company, including simpler
procedures and potential to help small businesses grow. They note that
there is a difference in practice in the countries surveyed, some with
significant drawbacks including high capital requirements, restrictions
on transfer of shares, inability in some countries for the shareholder to
incorporate more than one company and the universal problem of the
possibility of the business failing on the death of the shareholder. These
studies indicate that there are a number of areas that require consideration
at the national level and it would be useful to consider some of these from
a Kenyan perspective.

This paper proposes to explore three areas: obligations of the single

member company to penal sanction, corporate governance of the single
member company and the problems of transmission of shares on the

368. Subai, Pereswei “Towards Single Member Companies”

369. Mecky, Robert “ The companies Act & Single Member Shareholders Company: An
Appraisal” 5 Tum Law Rev 136 (2018).
370. Business Law (Miscellaneous Amendment) Act No 3 of 2012 Tanzania.
371. Ahmasher, Salah Mohammed. “Single Shareholder Company in Africa, America and
Australia: A Comparative Analysis” Sirwajya Law Review Vol 7 Issue 1 2023.

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death of the sole shareholder/director. The paper is not intended to deal

exhaustively with such an important and wide subject as small business
formation and running, but will only touch on a few areas and suggest
possible areas for reflection.

In order to achieve this, we have divided the paper into six brief sections.
Part II deals with the evolution of the corporate form to introduce
the single shareholder company. In part III of the paper examines the
obligations that have been placed on the single shareholder company.
Part IV considers if the principles of corporate governance can apply to
the Kenyan single shareholder company Part V considers the conundrum
created by the transmission of shares on the death of a single shareholder
when there is no person authorized to effect the transmission on behalf
of the company as the sole shareholder director has died. In part VI we
draw conclusions.

2. Evolution Of Coporate Form To The Singe

Shareholder Company

Ever since the English court decision in Aron Salomon v A. Salomon

and Company Limited,372 it has been clear in common law countries that
a company is, in law, a separate entity distinct from its members. This
legal personality has been acclaimed the “law’s greatest contribution to
business and commerce”.373 The separation of a company from its owners
has enabled the company to become a relatively risk-free revenue raising
device. The company is clearly the most effective vehicle yet discovered
to manage and control modern business enterprises. It permits, with

372. Aron Salomon v A. Salomon and Sons Limited (1897) AC 22.

373. Pickering M.A. 31 M.L.R. 481, 511 as quoted in Eshiwani, Artur A. “The Legal Personality
and the World of Fact: A Myth or Reality” The Scottish Law Gazette Vol. 52, No. 4 December 1984
p. 119-225 at 119; The Company has numerous advantages it is not susceptible to “the thousand
natural shocks that flesh is heir to” Gower p 44; In the words of Greer L.J. in Stepney Corporation
v Osofsky [1937] 3 All Er 289 at 291, CA a corporate body has “no soul to be saved or body to be
kicked” Pope Innocent the IV forbade excommunication of corporations because having neither
mind nor soul they could not sin.

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a minimum of risk of loss to investors, the combination of capital and

skill for vast business operations. No other method has been found by
which such large amounts of capital are so easily assembled for huge
business control within the private sector, making the company among
the most influential of social groupings.374 The advantage of separate
legal personality of companies is exemplified by past Initial Public Share
Offerings and listings at the Nairobi Stock Exchange that exceeded all
expectations.375The obvious advantages of the company and the recent
interest in the company as a capital raising device place company law at
a very important position.

The advantages of incorporation should ideally also be available for

informal sector business. Unfortunately, the complexity of company law
and the difficulties associated with formation of companies would put off
a “jua kali” entrepreneur. It may be noted that early African attempts at
company formation were beset with difficulties. After the Second World
War, returning soldiers had available relatively large sums of money
by pre-war standards and pooling of some of these resources resulted
in a boom on trade and company formation.376 By 1949, it was reported
that there were 17 African public companies with a combined nominal
share capital of KES 4,270,000 and 53 African private companies with
a combined nominal share capital of KES 2,706,000. The performance
of the management of some of these African companies was less than
perfect. The report of the Registrar of Companies in 1950 reported that:

“I have looked into the files of all these companies and do not
think there is a single one whose affairs I can honestly describe as
satisfactory….I cannot help feeling that legislation is necessary
to control the formation of companies by Africans. I fully realize
the political dangers in that the cry of discrimination would

374. Cooke, CA.”Corporation Trust & Company: An Essay in Legal History” Manchester.
Manchester University Press. 1950. p.7.
375. Equity Bank listing, Kengen IPO, Scanad IPO which were extremely successful.
376. Himbara, David op cit p. 70.

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at once be raised, but the fact remains that the companies

already incorporated by Africans during the last five years
have collected from a vast number of African individuals a sum
certainly in excess of 1 ¼ million shillings, of which by far the
greater part is now hopelessly lost.”377

An earlier 1945 report had warned that African managers and promoters
were essentially “defrauding shareholders of the funds of companies
which they are running”.378

The problem cannot, however, be attributed to Kenya alone for in

England the Jenkins Committee was concerned with the irresponsible
proliferation of companies particularly “one man” companies and the
dangers of abuse through the incorporation with limited liability of very
small under-capitalised business and noted that:

“In this connection, a sample analysis made by the Board at

our request indicated that 20 per cent, of all private companies
registered in 1954 had by mid-1961, gone into liquidation or
had been struck off the register or were seriously in default
in filing returns. We are satisfied that this proliferation of
very small companies can and does lead to abuse and gives
rise to ever-increasing administrative difficulties, and should,
if possible, be checked without making it unduly difficult for
genuine small businesses to incorporate with limited liability.
We make a number of proposals below which we think might
achieve this purpose.”379

The problem persisted in England because, although there were

numerous changes to the 1948 English company legislation, the UK
government, in the 2005 White Paper on company law reform, noted

377. Registrar of Companies 1950 Report cited in Himbara op.cit.

378. Registrar of Companies 1945 Report as quoted in Himbara. op.cit.
379. Jenkins Committee op.cit para 20.

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that the vast majority of UK companies are small yet company law has
been traditionally written with large companies in mind and provisions
that apply to small or private companies are frequently expressed as a tail
piece to the provisions applying to public companies.380

In Kenya, the 1999 Company Law Task Force recommended that a number
of “facilitating steps” should be taken in order to create an enabling
environment for small business companies.381 The proposals included
first, the elimination of the Memorandum and Articles of Association,
and instead introduce the use of standard forms such as the type used in
the registration of co-operative societies. Those incorporating the small
business company would then fill in the major details, such as particulars
of directors of the company. Second, only residents would be allowed
to incorporate a small business company. Residence would be defined
widely to include any person resident in Kenya on some permanent
basis.382

A third proposal was that only a small nominal capital and fixed stamp
duty fee should be paid on incorporation and a registration fee that is not
ad valorem should be levied.

The small business company, it was recommended, should be exempt

for the requirement to have a company secretary and should be allowed
to file simplified annual returns stating the minimum and excluding
financial reporting would be filed. It would be exempt from audit and
minimum wage requirements. The report also recommended that
the post-incorporation consequences, such as the holding of statutory

380. Company Law Reform Bill White Paper 2005 p. 29 hhtp;//www.dti.gov.uk/files/file25408.

pdf
381. “Report of the Task Force Appointed to Review the Law Relating to Companies,
Investments, Partnerships and Insolvency” Chaired by J.N. King’arui Presented to Hon S. Amos
Wako AG of Kenya 2 December 1999.
382. Report of the Task Force Appointed to Review the Law Relating to Companies, Investments,
Partnerships and Insolvency” Chaired by J.N. King’arui Presented to Hon S. Amos Wako AG of
Kenya2 December 1999.

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meetings and the delivery of statutory reports and the requirement as to

commencement of business, would be reviewed with a view to exempting
the small business company.

Indeed, the position is that many of the incorporated companies in Kenya

were actually single person entities which Justice Luka Kimaru in the
case of Jane Gathoni Muraya-Kanyotu v Mary Wanjiku Kanyotu & 9
others described as “Kampuni Yangu”.383

In acknowledging this, the drafters of the Companies Act 2015 accepted

the position of a single shareholder company thus legislating for kampuni
yangu.384 This is borrowed from the English Companies Act 2006.385
However, the single member company is alien to the common law tradition.
It found its way into English Law via the European Community Council
Directive on Single Member Private Limited liability companies.386

A number of other countries have also accepted the single member

company and have enacted legislation permitting single member
companies. These include: India,387 Australia,388 China, Hong Kong,389
Germany, South Africa390 and member states of the Organization for
Harmonisaiton of Business Law in Africa.391 In Uganda, the single
shareholder company was introduced in 2012 through the Companies
Act 2012 and the companies are regulated by Companies (Single

383. Jane Gathoni Muraya-Kanyotu v Mary Wanjiku Kanyotu & 9others [2013] eKLR op cit.
384. The Companies Act 2015 section 102.
385. S. 123 English Companies Act 2006 https://www.legislation.gov.uk/ukpga/2006/46/
section/123
386. European Council Directive No 89/667 on single-member private limited liability
companies [1989] OJL 395, December 12, 1989.
387. See s. 2(62) The Companies Act. 2013 India which terms it a “one-person company” https://
www.mca.gov.in/Ministry/pdf/CompaniesAct2013.pdf
388. See s. 198E Cooperation Act 2001 Australia which terms it a “single director/shareholder
proprietary company” https://www.legislation.gov.au/Details/C2018C00031.
389. See s. 67 Companies Ordinance (Cap 622) Hong Kong “any person or persons may form a
company…” https://www.elegislation.gov.hk/hk/cap622?xpid=ID_1438403540805_001
390. See s. 13(1) Companies Act No 71 of 2008 “one or more persons may incorporate profit
company” https://www.gov.za/sites/default/files/gcis_document/201409/321214210.pdf
391. See Art 5 Uniform Act Relating to Commercial Companies and Economic Interest Groups,
Organization for the Harmonisation of Business Laws in Africa (OHADA)

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Member) Regulations of 2016.392 The single shareholder company was

also introduced in Tanzania in 2012 through an amendment to the
Companies Act of 2002.393

Over the years, there had been numerous recommendations from scholars
and students of Kenyan company law about the various amendments that
should be made to the law.394 This notwithstanding, the Kenyan Companies
Act had remained generally static in its original form with a few ad hoc
amendments being made to it. This changed with the enactment of the
Companies Act No 17 of 2015. One key feature of the Act which is of
interest of this paper is the inclusion in the Act of the single member
company. Section 102 of the Act allows for the formation of a company
with a single member.395

Business ventures in Kenya vary a great deal and therefore, before

starting a business, one is first confronted with the task of selecting the
form of business enterprise that would be most suitable. One may choose
either a Business Name, Partnership, Cooperative or a Company.396 The
company is the most complex form of business entity to establish and
to run, but because of its numerous advantages over the other business
ventures it is still a common form of business entity.

392. S. 4 Companies Act Act No 1 of 2012 Uganda https://www.ulii.org/akn/ug/act/2012/1/

eng%402015-07-01#part_II__sec_4 Companies (Single Member) Regulations of 2016 the
companies must indicate their names as “SMC Ltd ” or “Single Member Company Limited”
393. See s. 26A Companies Act Tanzania introduced by s. 23 Business Laws
(Miscellaneous Amendments) Act of 2012 http://repository.businessinsightz.org/bitstream/
h a n d l e / 2 0. 50 0.12 018 / 2 8 6 / T h e% 2 0 B u s i n e s s % 2 0 L a w s % 2 0 % 2 8M i s c el l a n e o u s % 2 0
Amendments%29%20Act%2C%202012.pdf?sequence=1&isAllowed=y
394. See Report of the Task Force Appointed to Review the Law Relating to Companies,
Investments, Partnerships and Insolvency” Chaired by J.N. King’arui Presented to Hon S. Amos
Wako AG of Kenya2 December 1999.
395. S. 102 provides that ïf a company is formed under the Act with only one member, the
Registrar shall enter I the register of members of the company, the name and address of that
member and a statement that the company has only one member”. S. 102(2) provides covers
situations where a company’s membership falls to one,
396. For the previous law regarding these entities in Kenya see generally Ogola, J.J. Business
Law. Focus Books. Nairobi, 1999. see also Brownwood, David O. The Law of Business
Associations in Kenya. Prepared for Use in Courses at the Kenya Institute of Administration, 1968.
(Unpublished); the author is not aware of any published text on the law of business associations as
it currently stands in Kenya.

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Company law consists partly of ordinary rules of common law and equity
and partly of statutory rules. In Kenya, the statutory law governing
companies is the Company Act of 2015397. This statute which came into
force on 15th September 2015 is, in many ways, similar to the English
Companies Act, 2006 with modifications. The repealed Companies Act
was a replica of the English Companies Act of 1948. Earlier company
law legislation had been derived from India and earlier English Acts.398
It will be noted that little effort was ever made to enact legislation fitting
local needs, but instead there was a blanket adoption of English law.399

The English Companies Act 2006 was not a codifying statute, but only
lays down the core features of company law and, as a result, a lot of the
company law was not covered under the statute.400 The Act was to be
read against the backdrop of the common law and equity.401The Kenyan
Companies Act has therefore to be read together with the common law
and as further developed by Kenyan case law derived from interpretation
of the repealed Act. As such, Kenyan company law is a complex mix of
statute and Kenyan and English case law.

The 2006 English Companies Act is drafted with complex European

companies as its concern.402 Few Kenyan companies can be classified
as fitting the same sort of criteria. The Companies Act is a voluminous
and complex piece of legislation with formidable and embarrassingly

397. The Companies Act No 17 of 2015 Laws Of Kenya. Government Printer Nairobi see also
http://www.kenyalaw.org
398. The Indian Companies Act, 1882 was applied in Kenya. The UK. Companies Consolidation
Act 1908, was enacted in Kenya in 1926 and the 1929 UK Act was re-enacted in Kenya in 1948.
399. Acting Solicitor General of Kenya E. Webb in 1959 Legislative Council debate to introduce
the Companies Act stated “Company Law in Kenya has always, for obvious and cogent reasons,
followed English law” 1959 Kenya Legislative Council Debate 1959 (Vol 81 p. 20) as quoted in
Katende, J.W et al. “The Law of Business Organizations in East and Central Africa” East African
Literature Bureau. Nairobi 1976 p. 13.
400. Davies, P.L. & S. Worthington. Gower & Davis Principles of Modern Company Law. 9th
ed Sweet & Maxwell London 2012 p. 62. On the 1948 Act see Gower, L. Modern Principles of
Company Law. 2nd ed. London, Stevens and Sons. 1957 p.8.
401. ibid.
402. Ibid Davies 2012 Chapter 3 on Sources of Company Law and Gower 1957 Chapter 2-3 in
particular see p. 53-54 on Twentieth century reforms in company law.

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long 1026 sections, 6 schedules and additional subsidiary legislation.403

A complex piece of legislation such as this being imposed on a relatively
simple economy such as Kenya, it can be argued, is not ideal.

However, given the vast area that is company law ranging from formation,
to liquidation, rights of directors, to protection of investors, it is difficult
to see how the drafters of the statute would be able to further simplify
it. Indeed, the 1962 Report of the English Company Law Committee
chaired by The Right Honorable Lord Jenkins to review the 1948 UK
Companies Act concluded that:

This elaboration of the law can generally speaking be justified

as having been found necessary in order to keep effective control
over the growing and changing uses of the company system as
an instrument of business and finance and the possibilities of
abuse inherent in that system. It would be wrong in principle
to disturb in any important respect long-standing provisions
designed to serve these ends unless they have clearly outlived
their usefulness or are demonstrably objectionable on other
grounds.404

Companies in Kenya range from the sophisticated multinational

companies listed on the Nairobi stock exchange to the less sophisticated
family company down to the one-man so called “brief case” kampuni
yangu type company. The Jenkins’ Committee conclusions may be
sound for the former, but not necessarily so for the latter.

403. The Repealed Act was less formidable but no less complex with 406 sections and 10
schedules.
404. “Report of the Company Law Committee” Presented to Parliament by the President of the
Board of Trade June 1962. Her Majesty’s Stationery Office, London, 1962. para 6 (available at
http://www.takeovers.gov.au/content/543/Downloads/jenkin.rtf)

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It has been widely agreed that the 1948 Companies Act improved the
Company legislation and had generally worked well.405 As the Jenkins
Committee noted, however, company law is not a field of legislation in
which finality is to be expected. The law here falls to be applied to a
growing and changing subject matter.406

Many years have passed since the Jenkins Report and, in addition,
the application of the repealed Companies Act in Kenya come with
its peculiar challenges. The Jenkins Report had recommended many
changes to the 1948 UK Companies Act including a recommendation
that the minimum membership of all public and private companies
should be two.407 It further recommended allowing companies to issue
shares of no-per value since the per value has become an artificial
figure.408 It also recommended that there should be no distinction in the
Companies Act in the treatment of public and private companies except
that private companies should be allowed to restrict transfer of shares.409
It recommended changes to the ulta vires rule so that a party should not
be deprived of his right to enforce a contract on grounds that he had
actual knowledge of the contents of the memorandum and articles of
association at the time of entering into the contract if he honesty and
reasonably failed to appreciate that they had the effect of precluding the
company from entering into the contract in question.410

In Kenya, the 1999 “Report of the Task Force Appointed to Review the
Law Relating to Companies, Investments, Partnerships and Insolvency”
made many recommendations similar to those made earlier by the
Jenkins committee. 411

405. ibid para 7.

406. Ibid para 9.
407. ibid para 31.
408. Ibid.
409. ibid para 67.
410. Ibid para 42.
411. .“Report of the Task Force Appointed to Review the Law Relating to Companies,
Investments, Partnerships and Insolvency” Chaired by J.N. King’arui Presented to Hon S. Amos
Wako AG of Kenya2 December 1999.

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The framework and general principles upon which English company law
is based were questioned in England and the review of the core company
law has resulted in the publication of the final report of the Company
Law Review Steering Group in July 2002 and subsequent publication of
the Companies Bill which was passed the house of commons in 2005.412
This became the English Companies Act of 2006.

In Kenya, the single member company is provided for under section

102 of the Companies Act 2015. The section provides that a limited
liability company may be formed with only one member. In such a case,
the Registrar shall enter the details in the register and also state that the
company has only one member.413 Where the membership of a company
falls to one then the company is required to enter in the register of
members the fact that the membership has so fallen and indicate the date
on which this occurred.414 Where the membership increases part one, the
company is also required to indicate this fact in the register. Significant
fines can be imposed for failure to adhere to these provisions.415

The formation of the single member company involves completing

a number of simple electronic forms available through the Business
Registration Services web site.416

The formation of business entities was one of the points of focus of the
legal reforms as it is one of the key indicators in the ease of the World
Bank’s doing business reports.417 The time taken for starting a business
that looks at the procedures, time, cost and paid in capital to start a
limited company was part of the criteria used to measure ease of starting
a business. The social pressure exerted by these reports on global policy

412. http://www.publications.parliamnet.uk/pa/pabills/200506/companies.htm
413. S. 102(1) Companies Act 2015.
414. S. 102(2) Companies Act 2015.
415. S. 102(4) Companies Act 2015 a company which fails to comply with the requirements
commits and offence and on conviction is liable to a fine not exceeding Kshs 500,000.
416. https://brs.go.ke/#
417. https://www.doingbusiness.org/en/reports/global-reports/doing-business-2020

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makers was immense.418 The Kenyan government and policy makers, like
their peers elsewhere, paid a lot of attention to these reports419. In the last
report on business environment, Kenya was ranked third in Africa and
56th in the World.420 In ease of starting a business, Kenya ranked 25th in
Africa and 129th in the world.421 By focusing on the key indicators, Kenya
rose 80 places since 2014 and aimed at being among the top 20 countries
by 2022.422

The ease of formation of the company is one of the criteria used in the
ease of doing business reports. It was not the only criteria, but it was
a significant one. However, the ease of doing business measurements
on formation of companies do not tell one how complex it is to legally
run the company once it has been formed and also does not consider
complexities in areas such as business succession. As such, the
complexity of the law goes unmeasured. Little attention is given to the
obligations of the shareholder members of the companies under the law.
The lack of measurement of important aspects is not the only criticism
of the doing business reports. The critics also argued that governments
keen on improving rakings will begin gaming the system; rewriting laws
with an eye on the rankings. Rankings are also not a substitute for sound
economic strategy.423

418. Doshi, R et al. “The Power of Ranking: The Ease of Doing Business Indicators and
Global Regulatory Behavior.” International Organization. https://oconnell.fas.harvard.edu/files/
bsimmons/files/doshikelleysimmons_edb_penultimate.pdf
419. Republic of Kenya Ease of Doing Business Milestones 2014-2020 November 2020 https://
www.innovationagency.go.ke/uploads/Ease_of_Doing_Business.pdf
420. World Bank. Doing Business 2020: Sub Saharan Africa p. 4 file:///C:/Users/Admin/
Downloads/SSA.pdf
421. World Bank. Doing Business 2020: Sub Saharan Africa p. 7 file:///C:/Users/Admin/
Downloads/SSA.pdf
422. Forward by then President of Kenya Uhuru Kenyatta in Republic of Kenya Ease of Doing
Business Milestones 2014-2020 November 2020. Indicating “the Government has pushed through
several reforms supporting the ease of doing business” https://www.innovationagency.go.ke/
uploads/Ease_of_Doing_Business.pdf
423. For one of the early critics see Acemoglu, Daron et al “A Review of Doing Business” May
2013 file:///C:/Users/Admin/Downloads/Open-Letter-Review-of-the-Arguments-on-DB%20(1).
pdf For summary of arguments see Bek, Torsten “The Demise of Doing Business: Good hart’s
Law in Action” https://cepr.org/voxeu/columns/demise-doing-business-goodharts-law-action

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The proponents, however, argued that it was precisely because of their

great influence that the reports attracted critics. However, significant
problems with the doing business data was found in the years 2018-
2020.424 After an external review, the reports were discontinued. 425

There had, however, been a single-minded aim at improving rankings at

the expense of reviewing other areas such as operation of the business,
particularly for small and medium enterprises.426 This may include a
failure to examine if the operation environment of the companies was
conducive to conducting business. Kenya may have been affected by this
type of focus and left other areas unattended to.

In the next part of the paper we summarize some of the obligations that
a single member shareholder has under the Act and suggest that they are
too numerous and obscured by the sheer volume of the Companies Act.
In the succeeding part we consider the problem of the death of the single
shareholder in Kenya.

The Business Registration Services does not include the number of single
member companies in its reports. As at 2021, the number of business
entitles were:427 Business Names 1 269, 797, Private Companies 614,543,
Public Companies 4,284, Foreign Companies 5,064, Companies Limited
by Guarantee 1,709, and Limited Liability Partnerships 2,278.

424. Statement of World Bank Group on Discontinuing Doing Business Reports https://archive.
doingbusiness.org/en/doingbusiness
425. Afaro, Laura and Alan Aurback “Doing Business: External Panel Review: Final Report
Sept 1 2021” https://www.worldbank.org/content/dam/doingBusiness/pdf/db-2021/Final-Report-
EPR-Doing-Business.pdf https://archive.doingbusiness.org/en/doingbusiness for supporters of
reports see for example Chuin, Curtis and A Sedharam “Op-ed: It’s time for the World Bank to
get back to the business of doing business” https://www.cnbc.com/2022/05/03/op-ed-world-bank-
must-bring-back-ease-of-doing-business-report.html
426. Afaro, Laura and Alan Aurback “Doing Business: External Panel Review: Final Report
Sept 1 2021” https://www.worldbank.org/content/dam/doingBusiness/pdf/db-2021/Final-Report-
EPR-Doing-Business.pdf site lack of relevance to SMEs in some measurements as a criticism of
the ease of Doing Business Reports.
427. Business Registration Service Annual Report 2020/2021 p. 10 https://brs.go.ke/annual-
report/

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The same Act that governs the private companies and within them the
single member company is the same Act that regulates the publicly
listed company. Unfortunately, the Companies Act is an unmanageable
monstrosity. It has 1026 sections and 6 schedules of subsidiary provisions.
It is intimidating to lawyers and laymen alike. Amending company law in
this way to take care of the SME sector was, in the writers view, perhaps
too complicated as the same law applicable to the SMEs is expected to
meet the legitimate needs of the large and sophisticated enterprises as
well.

As an American writer put it:

Every lawyer who holds himself out as a legislative draftsman

dreams of one perfect job….The draftsman of bills will be ready
to pronounce his nunc diittis the day he sees enacted into law
a statute of his devising that leaves no contingency unprovided
for and that is clear and unambiguous in its direction as to each
and every conceivable fact situation which may take place in
the world of affairs.

Unhappily, the gap between aspiration and accomplishment stretches as

wide in legislative craftsmanship as in any other professional field. The
draftsman can narrow the area of statutory uncertainty by painstaking
fact-gathering and intensive study of every facet of existing case and
statute law bearing on the matter at hand. He can reduce the incidence
of statutory ambiguity by conjuring up hundreds of hypothetical fact-
situations which may arise in the future for decision under the statute.
But, when the job is done and the bill added to the statute books, there
will still be cases for which the statute affords no certain guide428

428. “Some Causes of Uncertainty in Statutes” 36 American Bar Association

Journal 321 (1950)

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To illustrate the point, we have extracted the offences/infractions under

the Act that the single member owner of Kampuni Yangu is likely to be
liable. It is unlikely that many owners of Kampuni Yangu know just how
exposed they are. We later consider corporate governance of the single
member company and the problem of the death of the single shareholder
and the problem caused during the interval between the death of the
single shareholder and the transmission of shares to a new shareholder(s).

3. Criminal Officences And The Single Member

Company

Below in tabulated form are a few of the offences that the shareholder in
single member company could violate and the penalties that accompany
conviction for the offences.

A few offences that the single member shareholder may

be liable for

NON-COM-
PLIANCE
POST CON-
PENALTY
SECTION OFFENCE VICTION
CAP
PENALTY
(For each
such offence)
102-Single Failure to comply Kshs Kshs 50,000/=
member compa- with subsection (2) 500,000/=
nies. or (3) filings to be
made when number of
shareholders reduces
to one or increases
beyond one.

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NON-COM-
PLIANCE
POST CON-
PENALTY
SECTION OFFENCE VICTION
CAP
PENALTY
(For each
such offence)
193- Contract A contract complies Kshs N/A
with sole mem- with this subsection if 200,000/=
ber who is also the terms are either-
director.
(a) set out in a written
memorandum; or
(b) Recorded in the
minutes of the first
meeting of the direc-
tors of the company
following the making
of the contract.
372- Copy of Failure of a company Kshs Kshs 20,000/=
the report to be to which a report is 200,000/=
lodged with the made under section
Registrar. 368 as to the value of
any consideration for
which, or partly for
which, it proposes to
allot shares to lodge a
copy of the report to
the Registrar for regis-
tration at the same
time as it lodges the
return of the allotment
of those shares under
section 333.

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NON-COM-
PLIANCE
POST CON-
PENALTY
SECTION OFFENCE VICTION
CAP
PENALTY
(For each
such offence)
420- What is a If the directors make Kshs N/A
solvency state- a solvency state- 1,000,000/=
ment? ment without having
reasonable grounds
for the opinions ex-
pressed in it, and the
statement is lodged
with the Registrar,
each of the directors
who are in default
commits an offence.
424- General A limited company Contra- N/A
rule against shall not acquire its vention by
limited company own limited company the compa-
acquiring its shares, whether by ny -Kshs
own shares. purchase, subscription 1,000,000/=
or otherwise, acquir-
ing its own shares
except in accordance Contra-
with this Part. vention by
the offi-
cers- Kshs
500,000/=

460- Enforce- If a company fails Kshs Kshs 20,000/=

ment of right to to comply with a 200,000/=
inspect copy or requirement of section
memorandum. 459 (Copy of contract
or memorandum to be
available for inspec-
tion, the company,
and each officer of
the company who is
in default, commit an
offence.

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NON-COM-
PLIANCE
POST CON-
PENALTY
SECTION OFFENCE VICTION
CAP
PENALTY
(For each
such offence)
473- Directors’ If the directors make Kshs N/A
statement: Of- a statement under 500,000/=
fence if no rea- sections 468 to 471 or to
sonable grounds without having rea-
for opinion. sonable grounds for Imprison-
the opinion expressed ment for
in it, each of the direc- a term not
tors who are in default exceeding
commits an offence. twelve
months, or to
both.
629- Offence for Failure of company to A natural N/A
company to fail comply with section person- Kshs
to keep prop- 628 (Duty of com- 1,000,000/=
er accounting pany to keep proper or impris-
records. accounting records). onment for
a term not
exceeding
two years or
both.

A body cor-
porate- Kshs
2,000,000/=
636- Financial Failure of directors of Kshs N/A
statements to a company to approve 500,000/=
give fair and true financial statements
view. for the purposes of
this Division only if
they are satisfied that
the statement gives a
true and fair view of
the assets…

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NON-COM-
PLIANCE
POST CON-
PENALTY
SECTION OFFENCE VICTION
CAP
PENALTY
(For each
such offence)
654- General Failure to include in Kshs N/A
requirements the report: 500,000/=
for contents of
directors’ report. - the names of
the persons
who, at any
time during
the financial
year, were
directors of
the company;
and
- the principal
activities of
the company
during the
course of the
year
Failure by the di-
rectors to specify in
the report amount (if
any) that the directors
recommend should be
paid as a dividend.
686- Lodgement Failure of directors Kshs N/A
to comply with the 500,000/=
requirements for requirements of the
companies section.
subject
to small compa-
nies regime.
708- Offence Failure to comply Kshs Kshs 20,000/=
for company to with section 705 (1) 200,000/=
not lodge annual and (3).
return on time.

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NON-COM-
PLIANCE
POST CON-
PENALTY
SECTION OFFENCE VICTION
CAP
PENALTY
(For each
such offence)
819- Offence A person providing Kshs N/A
to provide false false information 500,000/=
information. knowingly or reck- or impris-
lessly providing infor- onment for
mation that is false in a term not
a material particular. exceeding
two years or
both
890- Companies Failure to keep a copy Kshs Kshs 50,000/=
to keep copies of of every document 500,000/=
documents creat- creating a charge that
ing charges. is required to be regis-
tered under this Part.
1006- Form Failure to comply Kshs Kshs 20,000/=
of company with the requirements 200,000/=
records. of the section

A reading of the table of offences above suggests that the single member
shareholder may pay numerous fines if the provisions of the Act were
strictly enforced. These provisions are hidden within the 1026 sections
of the Companies Act, 2015 and it is highly unlikely that the Kampuni
Yangu owner would be able to determine their obligations by reading
such a complicated statute. There is need to educate the shareholders of
the single member companies about the potential liabilities and need for
them to comply with the provisions of the Act.

In the next part of the paper we consider aspects of corporate governance

and the single member company as it relates to the Kenyan company.

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4. Corporate Governance And Kampuni Yangu

Corporate governance deals with how a company is managed and

controlled.429 Corporate governance has gained worldwide importance
with the efficiency and accountability of the corporation being a matter
of both public and private interest. The corporation has gained a vital role
in the promotion of economic development and social progress through
its main quality of being “the engine of growth internationally, and is
increasingly responsible for providing employment, public and private
services, goods and infrastructure.”430 Issues in corporate governance
have tended to be debated around the way in which the legal, institutional,
and regulatory problems that arise from the separation of management
and ownership can be managed. The OECD Principles of Corporate
Governance 2004 provide that good corporate governance entails
provision of proper incentives for the board and management to pursue
objectives that are in the interests of the company and its shareholders,
and should facilitate effective monitoring.431 The aim of the debate is to
try and align the interests of the shareholder and management which
necessitate understanding of the dynamics between both factions.

The theoretical approach to corporate governance is premised on the

agency theory and shareholder theory that provide differing views on
the relationship between shareholders and management of the company.
The agency theory developed initially by Adam Smith argues that the
managers of other people’s money take care of it in a different way
from how the owners themselves would have managed it,432 fostering
the fundamental idea of the principal-agent theory. Berle and Means, in

429. Cadbury, A., 1992. Report of the Committee on the Financial Aspects of Corporate
Governance. London: Gee.
430. International Finance Corporation, Global Corporate Governance Forum: Better
Companies, Better Societies (IFC 2010).
431. The Organization for Economic Cooperation and Development, OECD Principles of
Corporate Governance (OECD 2004) 11.
432. Smith, A. (1776), An Inquiry into the Nature and Causes of the Wealth of Nations, reprinted
in K. Sutherland (ed.) (1993), World’s Classics, Oxford: Oxford University Press.

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their analysis of the theory of separation of ownership and control,433 a

crucial ingredient of the principal-agent model, developed this further
by arguing that there exists a clear division of labour within a firm
catalysed by the premise that, as firms grow, ownership eventually
separates from control. On one hand, the managers have the requisite
expertise to run the firm but lack the required funds to finance their
operations. On the other hand, shareholders have the required funds, but
are often not qualified to run the firm. De facto control is therefore vested
in the managers who remain responsible for the day-to-day operation
of the firm whilst the firm is owned by the shareholders who finance its
operations and enjoy the profits thereof. With such separation of roles
between the financier and controller arises the so-called principal-agent
problem, first formalised by Jensen and Meckling:434 Whilst the agent has
been tasked by the principal with carrying out a specific duty, the agent
may take advantage of the opportunity and not act in the best interests of
the firm or shareholder and, instead, choose to pursue his own interests
and proclivities. This danger, or “moral hazard”, results in agency
costs that are a summation of three components: monitoring expenses
incurred by the principal to oversee an agent’s conduct, keep a record
of the agent’s behaviour, and implement safeguards and curtailments to
minimize losses in the event of such unwanted conduct; bonding costs
incurred by the agent to signal credibility to the principal that he/she will
act in the interests of the agent, such as investment in the latter’s firm, or
taking up a corporate ethics course; and residual loss which is incurred
by the principal where an agent does not make decisions that maximize
the value of the firm.435

433. Berle, A. and G. Means (1932), The Modern Corporation and Private Property, New York:
Macmillan.
434. Jensen, M. and W. Meckling (1976), ‘Theory of the firm. Managerial behavior, agency
costs and capital structure’, Journal of Financial Economics 3, 305–360.
435. Goergen M, “Chapter 1: Defining Corporate Governance and Key Theoretical Models,”
International Corporate Governance (Pearson 2012) 9.

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Viewed this way, corporate governance would have no relevance to

the small single member company as in most likelihood the single
shareholder is also the manager and the interests of the shareholder
and manager would, in this case, be aligned. As qualified by Berle and
Gardiner in their posited growth pathway for small enterprises to large
corporations,436 a firm, whilst starting off as a small business fully owned
by the founder, conflicts of interest would be virtually non-existent
owing to the entrepreneur’s role of both the owner and controller of
the firm. To further buttress the point, in line with the entrepreneur’s
bi-dimensional role, incentives to work hard for the success of the firm
arise as the entrepreneur stands to solely accrue the profits of the firm’s
achievement.

Of more relevance may be the shareholder or stockholder theory that

has its foundation in the book Capital and Freedom by Milton Friedman.
The theory postulates that there is only one social responsibility of
companies: to use resources in the development of activities that increase
profit but within the rules of free enterprise.437 Companies do not have
moral obligations or social responsibility with others that are not the
shareholders, it is sought to maximize profits in them. The shareholder
is the only one entitled to benefit from the company and the value is
based on how much they receive a true manifestation of the principle
of shareholder primacy. The member in the single member company is
perfectly incentivised to pursue success of the company, being the sole
shareholder. Where the member moves to work harder, all additional
revenue generated by the increase in effort will accrue to the member
alone for the subsistence of the company’s retaining of single member
status.438 Owing to the indivisibility of management and ownership in

436. Berle, A. and G. Means, (n 85) supra.

437. Friedman M, Capitalism and Freedom (University of Chicago Press 2002) 133
438. Goergen M, (n 87 supra at 8.

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such an instance, the member’s decision, beneficial or detrimental to

the company, is a manifestation of the will of the shareholders of the
company, hence incorporation of corporate governance is difficult.

In 1984, Edward Freeman put forward the stakeholder theory that argued
that the organization should be developed taking into account all interest
groups, including employees, clients, suppliers and creditors.439 Vide this
way, corporate governance will be targeted at safeguarding the value
for all stakeholders in the company. The company is viewed as a nexus
of contracts between different people including suppliers, employees,
creditors, and management.440 Thus, the control organ of the company
ought to be cognizant of the operations of the firm, and the impact thereof,
on the stakeholders of the firm, and lead the firm towards value creation
in the interest of both shareholders and stakeholders. Application of the
theory has resulted in the Input-Output Model.441 In this model, investors,
employees and suppliers contribute input that is transformed by the
“black box” of the firm into outputs for the benefit of the customers.
Each contributor is reimbursed for his/her contribution at market rate
with little to no additional benefits.

The Stakeholder Model442 also arises, the point of variance being that
benefits accrue to all contributors at the same time with no prima facie
priority to a particular set of interests. The common denominator is
that stakeholders are entitled to benefits arising from the operations of
the firm. However, the theory has been criticized for undermining the
capitalist market based economy443 and has been termed as a “vampire
in the field…feed[ing] on any living body or idea that crosses its path.”444

439. Freeman RE, Strategic Management: A Stakeholder Approach (Pitman 1984).

440.
441. Donaldson, T. and Preston, L.E., “The Stakeholder Theory of the Corporation: Concepts,
Evidence and Implications” (1995) 20 The Academy of Management Review 68.
442. Ibid.
443. Mansell, S., Capitalism, Corporations and the Social Contract: A Critique of Stakeholder
Theory (Cambridge University Press 2013).
444. Orts, E. and Strudler, A., “Putting a Stake in Stakeholder Theory” (2009) 88 Journal of
Business Ethics 605-615.

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Mansell, in his reinvigoration of the “contractual and commercial

conception of corporations,” views stakeholders as commercial entities
that trade with the firm in a competitive market,445 emphasis being placed
on the adversarial nature of the market rather than the collaborative
nature incorporation of stakeholders’ interests in the firm’s operation
posits. However, a broader look into the interests in play reveals the
importance of safeguarding stakeholders’ interests, being maintenance
and improvement of the very ecosystem in which the firm exists and
operates.

Interestingly, both King Reports I and II note the complexity of modern

corporations due to the inclusion of various interest groups into the
scope of corporate governance. The simplistic pattern of companies
that existed post the industrial revolution is no longer descriptive of
the current position of the typical modern company.446 Directors, whose
responsibility largely dwells in fundamental policy, now delegate the
mundane management of day-to-day activities to professional managers
whilst taking a more nuanced role in decision-making and leadership.
The weight of cash flow of major financial institutions has quashed family
control of companies, replacing it with identifiable institution control.
Employees are also becoming more involved in the decision making
process and the interests of customers, suppliers and the community
are now far more relevant to corporate decision making than before.447
Thus a departure from the Anglo-American approach towards the Euro-
Japanese approach is observable.

Vide this way there is a place for corporate governance of the single
member company. Shelving the initial perception of a single member
company being an alter ego of the member, the company is now seen as
an entity serving multiple interest groups, that is the director-shareholder,
and other stakeholders that depend on the success of the company. As

445. Mansell, S., (n 107) supra at 109.

446. King ME I, (n 76) supra at 1.
447. King Report I, Chapter 12; Chapter 20 para 9, 11; cf. King Report II at pp. 5 para 4.

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such, following the stakeholder approach, their opinion in terms of

the operations of the company ought to be put into mind by the single
member. Therefore, limitation on the power and control of the single
member arises insofar as the stakeholders’ interests are concerned.

Looking at the practical approach towards corporate governance, the

Kenyan position is one that begins with the introduction of corporate
governance into the private sector by the Private Sector Initiative for
Corporate Governance in 1999 when it issued the Principles of for
Corporate Governance in Kenya and a Sample Code of Best Practice for
Corporate Governance.448 This initiative was stimulated by the call for
corporate governance in South Africa as a crucial attribute of national
economic development through the King Report I, the positive steps
that were taken by Zimbabwe, Ghana, Uganda and South Africa at the
time in putting in place national institutional mechanisms to promote
good corporate governance,449 the overall lack of accountability in the
public sector pre-liberalization of Kenya’s economy and privatization of
government corporations in the 1990s and the absence of a corporate
governance framework.450 Uganda stood out through its establishment of
the Institute of Corporate Governance of Uganda and the formulation
and adoption of a national code of best practice for corporate governance,
being the first State in the East African region to establish a formal
working framework for corporate governance.451 Since then, efforts have
been made to reinforce the importance of corporate governance in Kenya
through the work of, among other actors, the Capital Markets Authority

448. Private Sector Corporate Governance Trust, Principles for Corporate Governance in
Kenya and a Sample Code of Best Practice for Corporate Governance (Private Sector Corporate
Governance Trust 1999).
449. Ibid., at 5.
450. Ruparelia, R. and Njuguna A., “The Evolution of Corporate Governance and Consequent
Domestication in Kenya”, 7 International Journal of Business and Social Science 5, 2016 at 159.
451. Private Sector Corporate Governance Trust, (n 77).

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in the adoption of the Capital Markets (Securities) (Public Offers, Listing

and Disclosures), Regulations, 2002 that sets out obligations regarding
corporate governance on companies.452

The Kenyan regulatory framework aims at promoting corporate

governance in registered companies through oversight on the relationship
between shareholders, stakeholders and management of companies. The
Capital Markets Authority Code of Corporate Governance Practices for
Issuers of Securities to the Public 2015 reiterates the position initially
conceptualized by the Cadbury and King committees in terms of
regulation of the relationship between the shareholders and directors of
the company. Shareholders are more involved in the board composition
process,453 inclusion of independent board members as an in-house
oversight body has been introduced,454 and appreciation of shareholders’
rights of transparent, effective and accurate communication with the
board,455 and equitable treatment 456 has been emphasised. Further, the
Code takes into account stakeholder interests in requiring the board
to maintain a stakeholder-inclusive approach in its communication,
decision-making and resolution of disputes.457 Within the stakeholder
framework, is the country’s society, communities and environment which
all require consideration in the board’s operation so as to promote and
protect the well-being of the economy, society and the environment.458
The “Mwongozo” Code of Governance for State Corporations takes a
similar approach, but with focus on state corporations and state-owned
entities.

452. Capital Markets (Securities) (Public Offers, Listing and Disclosures), Regulations 2002,
Fifth Schedule at CO.F.00.
453. Kenya Capital Markets Authority Code of Corporate Governance Practices for Issuers of
Securities to the Public 2015, Section 2.1.
454. Ibid. Section 2.4.
455. Ibid. Section 3.1.
456. Ibid. Section 3.2.
457. Ibid. Section 4.
458. Ibid. Section 5.3 - 5.4.

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More specifically on the interplay between corporate governance

and single member companies, the 1999 Principles and Sample Code
envisaged companies being constitutive of multiple members with
a clear distinction between shareholders and directors, unlike single
member companies that effectively fuse the two factions into one. Such a
concept of single member limited liability companies was foreign to the
Kenyan legal framework, with the Companies Act Cap 486 operational
at the time confining such entrepreneurs to operating under the remits
of sole proprietorship. The concept has since been incorporated into
Kenyan law in the Companies Act 2015, but with no amendments to the
corporate governance framework to reflect such an introduction to the
Kenyan corporate structure. Nonetheless, the 2015 Act retains regulatory
measures synonymous with corporate governance guidelines in
provisions relating to the relationship between the director, shareholder,
and the company. For instance, contracts not entered into in the ordinary
course of the company’s business between the sole entrepreneur and
the single owner company that he/she owns are required to either be in
writing, set out in a written memorandum or recorded in the minutes of
the first meeting of the directors after the making of the contract, despite
the company being viewed as the entrepreneur’s alter ego.459 Moreover,
decisions taken by the sole member that are ordinarily taken at a general
meeting are also required to be in writing, either in the form of a written
resolution or details provided by the sole member.460 These provisions
are mandatory and their contravention attracts fines on the sole member.

Considering the South African context, the Committee in King Report I

recognized the disconnect between the management of listed companies
and their constituent shareholders in South Africa, hence emphasised on
how imperative a good system of governance is, especially in the context
of corporations in which the owners of capital were dependent on directors
to control the business, or the directors are dependent on other persons

459. The Kenyan Companies Act 2015, Section 193.

460. Ibid, Section 319.

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to finance the company.461 It thus pursued examining the responsibilities

of executive and non-executive directors, and the frequency, substance
and form of information to shareholders and other stakeholders in the
respective corporations, given the South African philosophy of regulation
of companies was by means of disclosure in keeping with the Anglo-
American tradition.462 In the context of “Kampuni Yangu” or the single
member company, however, the King Committee terms the company as
an “independent” one where the owner of the equity and the directors are
effectively merged, thus the importance of corporate governance would
not be relevant in such a scenario. The fundamental point of divergence
is whether there is indeed a division between the owners of the equity
and managers of the company.

The King Report II reiterated the importance of corporate governance

in the protection of shareholders’ and stakeholders’ interests in listed
companies, financial institutions and public sector enterprises and
departments, with emphasis on the curtailment of conflicts of interest
that may exist by providing guidelines on the composition of the board,
appointments and committees on the board, and inclusion of external
parties such as auditors.463 Such conflicts of interest include dominance
by a strong chief executive or large shareholder. Further, it has clarified
the fiduciary duties directors have to the company, and appreciated the
application of the Business Judgement Rule which had been used in the
fore to justify directors’ business decisions, however unwise at the time.
The Report recommends, aside from the examination of whether the
rule would be applicable in South Africa, separate analysis of whether
or not the duty of care was complied with by the director in question,
thus safeguarding against decisions not in the interest of the company

461. King ME, The King Report on Corporate Governance (Institute of Directors in Southern
Africa 1994) 5.
462. Ibid. at pp. 3.
463. King ME, King Report on Corporate Governance for South Africa - 2002 (Institute of
Directors in Southern Africa 2002) 10 at 18.3.

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nor shareholders.464 Despite building on the principles first espoused in

the King Report I, the position on single member companies remains
unchanged; corporate governance is still irrelevant as long as ownership
and control are unified in one personality.

The King Report III465 is also based on the previous principles espoused in
King Report II, but with a widened scope covering all entities regardless
of the manner and form of incorporation or establishment.466 In addition, it
emphasizes the need for inclusion of stakeholders in the board of directors
being expected to consider the legitimate interests and expectations
of stakeholders other than shareholders. This may be seen as the first
implicit step towards the inclusion of single member companies into the
corporate governance discourse given that they are private companies.
The stakeholder approach is also relevant in that the Report departs
from the conventional assumption that management and shareholders
are separate bodies and the relationship between the company and its
stakeholders is brought into focus. Stakeholders are included in risk
disclosure reports,467 constructive engagement with the company,468 and
establishment of formal dispute resolution processes.469 These were new
requirements introduced in the Report that are applicable to single owner
companies, which are a manifestation of corporate governance in such
companies despite the lack of an express framework tailored to them.

The King Report IV470 is based on the underlying principles of the pervious
King Reports and draws more emphasis to stakeholder inclusion, IT
governance and disclosure. It replaces the “apply or explain” regime

464. Ibid. at pp. 73.

465. King Report on Governance for South Africa 2009 (Institute of Directors of Southern
Africa 2009).
466. PWC, King’s Counsel: Similarities and Differences Between King II and King III
(PricewaterhouseCoopers 2009) 5.
467. King Report III, (n 109) at Chapter 4.
468. Ibid., Chapter 8.
469. Ibid., Chapter 11.
470. King ME, King IV Report on Corporate Governance for South Africa 2016 (Institute of
Directors in Southern Africa 2016).

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under King Report III with an “apply and explain” approach for the
recommended practices adopted, requiring explanations as to how they
have been adopted and measures taken to adopt pending practices in
the subsequent financial year. The Report tailors its recommendations
to various sectors471 including small and medium enterprises in which
the majority of single member companies fall. It notes the complexity
in imposing corporate governance involvement and structures in
companies whose founders serve as shareholder, director and manager,
and suggests formalization and separation of such roles from the outset
even where such roles are borne by the same individual.472 This may be
through conclusion of an agreement between the virtual shareholder and
board stipulating the roles to be undertaken by each, and the agreement’s
subsequent incorporation of a board charter, a management charter and
delegation of authority into the agreement.473 This move by the King IV
Committee evidences the need for corporate governance even in single
member companies, albeit with the expectation that such companies will
eventually grow into sizes and scopes that will compel the founder to take
more relaxed roles of shareholder-director and eventually shareholder.
Therefore, compliance with the King IV Principles is progressive
depending on the level of development of the company in question.

In the United Kingdom, the highly influential and widely acclaimed

Cadbury Report set the fundamental principles of management-
shareholder relations for every listed company in the United Kingdom,
and initiated a revolution in corporate governance thinking adopted
by countries and institutions across the world.474 These fundamental
principles include openness, integrity and accountability475: openness
with regards to management’s disclosure of information to those who

471. Ibid., p. 75.

472. Ibid., p. 106.
473. Ibid.
474. Jordan CE, “Cadbury Twenty Years On” (2013) 58 Villanova Law Review 1 <https://
heinonline.org/HOL/P?h=hein.journals/vllalr58&i=1> accessed May 5, 2023
475. Cadbury, A., (n 81) supra at para. 3.2.

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have a stake in the corporation thus bolstering efficiency and shareholder

scrutiny; integrity in terms of accurate and honest financial reporting
that presents a balanced picture of the state of the company’s affairs; and
accountability on the part of directors in disclosure and on shareholders
in the exercise of their responsibilities. Cadbury goes on to provide a
rationale for such compliance476 in that there would be a boost in the
efficiency of capital markets and general confidence in business in the
United Kingdom especially at the height of a “shrinking” global market
and shifts in investment to Europe and the Far East.477

It is of note that the entirety of the report is based on the presumption that
there is a separation of the owners from management in the company,
hence the notion of single member companies is foreign to the report. The
Cadbury Code of Best Practice,478 for instance, delineates a separation
of roles between the Chief Executive Officer and Board Chairperson to
curtail concentration of power,479 inclusion of non-executive directors to
provide an independent voice of approval or otherwise of the running
and performance of the company,480 and emphasis on accountability
and transparency in financial reporting.481 Conversely, single member
companies have their innate quality being concentration of power
and control over the company on a single director, who also owns the
company. Thus, the member is accountable to himself/herself, and is
guaranteed to act in the best interests of the company owing to present
incentives of the success of the company being directly beneficial to the
single member.

476. Ibid. at para. 3.5.

477. King ME I, (n 76) supra at 1.
478. Cadbury A (n 81) supra at pp. 58.
479. Ibid. at para 1.
480. Ibid. at para 2.
481. Ibid. at para 4.

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Nonetheless, the United Kingdom Companies (Single Member Private

Limited Companies) Regulations 1992 still require single member
companies to comply with provisions applicable to private limited
companies unless expressly provided in the contrary.482 Safeguards with
respect to transparency and accountability in the control of operations of
the company do exist. For instance, decisions made by the sole member
and adopted and accepted by the company shall be in writing, either
in a written record of details of the decision or written resolution,483 a
provision whose non-compliance attracts a fine. Contracts between the
sole member and the company that are not in the ordinary course of the
company’s business are also required to be in writing, even though the
company is, in effect, the member’s alter ego.484 Corporate governance is
therefore seen to be alive and active in its application.

482. United Kingdom Companies (Single Member Private Limited Companies) Regulations
1992, Section 2.
483. United Kingdom Companies Act 2006, section 357.
484. Ibid. Section 231.

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The table above based on the stakeholder theory of corporate governance

can summarise the discussion on corporate governance of the single
member company. In many single member companies, the stakeholders
on the left may be the same individual. The larger single member
companies the manager and owner will be the same person, but separate
from employees. The stakeholders on the right will exist even in single
shareholder companies.

Having considered single member companies and corporate governance,

we can consider the problems that may occur with the single member
company following the death of the single shareholder. These problems
are considered in the next part of the paper.

5. Death Of Kampuni Yangu Shareholder

Death and taxes are inevitable. In the unfortunate event of the death of the
single shareholder director of a company, the company may be exposed
to a number of risks. The death of the single shareholder/director results
in a situation where there is no person with authority to act on behalf of
the company. This creates a quagmire for the company for two reasons.
First, upon the death of the sole shareholder/director, no one is available
to continue the business and affairs of the company. Second, this is
compounded by the fact that there is also no one left with authority to
appoint alternative individuals to carry on the business and affairs of the
company.

The deceased’s shareholder’s personal representative appointed over

his/her estate will be able to solve these two problems once they are
appointed. Once they are appointed, they will need to be registered as
shareholder in place of the deceased and thereafter make appointments
of directors. The director(s) may either be themselves or any other

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person. The problem that arises is how is the company to be run during
the interregnum between the time of the demise of the sole shareholder/
director and the time when the personal representative is appointed?

Grant of representation or letters of administration, where the deceased

died intestate or grant of probate where the deceased left a will can be a
lengthy process.485 It is also to be noted that the Family Division Courts
do not have jurisdiction to deal with issues relating to company law. In
the case of Estate of Wagiko Ndibaru (Deceased)486 for example, Justice
W. Musyoka in the High Court stated:

Regarding the second application, I find that Nyakio

Investments Ltd is a separate legal entity from its shareholders,
therefore it has a separate legal existence from the deceased
and consequently this court is not the appropriate court to deal
with issue affecting it. The only matter of interest to the probate
court is the distribution of the shares held by the deceased in
that company. All other matters concerning the company ought
to be place before the commercial courts.

The Court of Appeal in the case of the case of Pacific Frontier Seas Ltd
v Kyengo & another487 re-empathized that where there is no dispute as
to distribution of shares, the court can attend to this. It can also prevent
intermeddling and interference with the deceased’s estate including and
property including shares. It cannot, however, veer into contestations
relating to the company which are to be resolved by the legal framework
provided for by the Companies Act.

The solution in Kenya may lie in amendment of the Companies Act to

require that every private company which has a sole shareholder/director
shall appoint a reserve director who will be capable of stepping in during

485. Law of Succession Act (Cap 160) Laws of Kenya.

486. Estate of Wagiko Ndibaru (Deceased) [2014] eKLR.
487. Pacific Frontier Seas Ltd v Kyengo & another [2022] KECA 396.

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the period of the interregnum before the grant of probate or the letters of
administration is completed. Such reserve director would automatically
take the position of director upon the death of the sole director thus
preserving the continuity of the company. The reserve director could also
to be a reserve director if the company appoints an additional director.488

6. Conclusion

This paper has explored three areas of interest regarding the single
member company- obligations of the single member company to penal
sanction, corporate governance of the single member company and the
problems of transmission of shares on the death of the sole shareholder/
director

It has been noted that despite the simplicity of the single member company
form, the company and the shareholder may be unwittingly exposed
to various criminal sanctions. It would be useful to simplify these
and educate the business owners about these. The single shareholder
company, as we have seen still has corporate governance responsibilities.
These are particularly clear when one considers the external shareholders
of the company. At the death of the single shareholder, there is a gap in
the law in the period before the process of probate starts. This is a period
of particular venerability for the company. Consideration should be given
to requiring companies to specifically provide for alternate directors to
represent the company during this interim period.

It is admitted that the proposals made in these areas are made without
surveying the current experiences of owners and stakeholders of the
kampuni yangu. It is, therefore, proposed that a survey of the experiences
of the kampuni yangu be undertaken and data collected. Current efforts

488. For example, s. 455 Hong Kong Companies Ordinance.

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and data have been focused on the speed of setting up of companies

and not on the survival of the companies once they have been set
up.

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