TerraLex Cross-Border Guide to Cross-Border Merger & Acquisition Guide

In Kenya, there are certain sectors which restrict the level of foreign investment such as banking, insurance, telecommunications, aviation, construction, and private security. Foreign investment in these various sectors is limited to various percentages as specified in the relevant sector's legislation. With respect to land, foreign investors may only hold land on the basis of leasehold tenure for a term not exceeding 99 years, and ownership of agricultural land is prohibited for private companies which are not wholly owned by Kenyan citizens.

To promote and facilitate foreign investment, the Investment Promotion Act, 2004 was enacted and established the Kenya Investment Authority. An investment of at least US$100,000 is required in order to be issued with an investment certificate which may be conditional, and which entitles the holder to various permits for their operations including work permits for its personnel. Depending on the sector, the foreign investor will receive tax incentives or exemptions. The Kenyan government is also promoting private public partnerships with specific focus on transport and Infrastructure, the sectors of education, health, and energy amongst others.

There are no exchange controls or currency regulations. However, for any amount above US$ 15,000 the Central Bank of Kenya requires that a commercial bank inform it as to the amount and purpose of such remittance.

There are various investment incentives available in Kenya to support private sector investment by foreign and domestic investors. Investors can be exempt from the payment of corporate tax, withholding tax on dividends, VAT, and stamp duty on instruments; deductions on the procurement of raw material and the investment; and receive work permits and accelerated approvals for licences and permits. The Special Economic Zones (SEZ) is such an initiative of the Kenyan government to create areas to facilitate foreign and domestic investment in the agriculture, manufacturing, tourism, information, and technology sectors, amongst others. Entities engaged in the development, management, or operation of an enterprise in the SEZ receive the aforementioned preferential tax treatment and procurement of work permits is facilitated by the Special Economics Zone Authority. Similarly, the Export Processing Zones (EPZ), an initiative to attract and facilitate export-oriented investments in Kenya grants the licence holders also grants preferential tax treatment (including tax holidays), expedited approval and licencing, reduced services, rent, amongst other incentives. This initiative is managed by the Export Processing Zones Authority which is mandated to promote export oriented industrial investments.

Employees are not entitled to management representation. Employers must:

1. consult individuals in redundancy situations;
2. where the employee is a member of a trade union, the union to which the employee is a member and the labour officer need to be notified of the redundancy;
3. notify the employees if the transfer of an undertaking might affect them; and
4. notify employees or their representatives before making certain changes to pension schemes depending on its constitutional documents.

An employer is required to comply with the following conditions to terminate a contract of service on account of redundancy: 1. if the employee is a member of a trade union, the employer is required to notify the union to which the employee is a member and the labour officer in charge of the area where the employee is employed of the reasons for, and the extent of the intended redundancy not less than a month prior to the date of the intended date of termination on account of redundancy. Furthermore, if there is in existence a collective agreement between an employer and a trade union setting out terminal benefits payable upon redundancy, the employer should not place the employee at a disadvantage for being or not being a member of the trade union. 2. if an employee is not a member of a trade union, the employer notifies the employee personally in writing and the labour officer. 3. if the employer has selected a number of employees to be declared redundant, due regard is to be given to seniority in time and to the skill, ability, and reliability of each employee of the particular class of employees affected by the redundancy. 4. payment of the redundant employees severance pay.

Redundancy payment is subject to the terms of an employment contract and/or any collective agreement, and the status of an employee on either being a full-time, probationary, or casual employee. A casual employee is paid at the end of each day and is not engaged for a period longer than 24 hours at a time. However, if a casual employee (a) works for a period or a number of continuous working days which amount in the aggregate to the equivalent of not less than one month, or (b) performs work which cannot reasonably be expected to be completed within a period, or a number of working days amounting in the aggregate to the equivalent of three months or more, the casual employment will convert into permanent employment and the employee will enjoy the rights that accrue under a regular contract of service.

Under Kenyan law the statutory redundancy payment is at the rate of not less than 15 days’ pay for each completed year of service. However, if the redundancy is as a result of the bankruptcy or insolvency of the employer, the amount shall not exceed ten thousand shillings (approximately US$70) or one half of the monthly remuneration whichever is greater in respect of any one month payable.

Transfer of shares in a Kenyan company will attract stamp duty at the rate of 1% of the value of the consideration and is payable by the purchaser with any increment of shares subject to the same rate.

Capital Gains Tax is also levied on the sale of shares at a rate of 15% of the net gain. However, shares traded on the Nairobi Securities Exchange are not subject to Capital Gains Tax.

The stamp duty applicable to an instrument of transfer assets is dependent on whether the asset is movable property or immovable property (land). The instrument of transfer of land will attract stamp duty at the rate of 4% of the value of the property for land in gazetted urban areas and municipalities, and 2% for other land. Instruments for the transfer of moveable assets may attract stamp duty of 2% but an instrument under the Moveable Property Security Rights Act is exempt from stamp duty. Gains on transfer of property within a special economic zone by a licensed SEZ developer, enterprise, or operator are exempt from income tax.

A transaction will be subject to the competition regime in Kenya if a change of control occurs by the acquisition of shares, business, or assets, whether inside or outside Kenya for the transaction will be deemed a merger.

A merger will be notifiable to the Competition Authority of Kenya if the undertakings have a minimum combined turnover or assets (whichever is higher) of one billion shillings (approximately US$ 7.2 million) and the turnover or assets (whichever is higher) of the target undertaking is above five hundred million shillings (approximately US$ 3.6 million).

A merger will be excluded subject to obtaining approval if the combined turnover or assets (whichever is higher) of the merging parties is between 500 million shillings (approximately US$ 3.6 million) and one billion shillings (approximately US$ 7.2 million).

A merger will be excluded from the notification requirement if the combined turnover or assets (whichever is higher) of the merging parties does not exceed 500 million shillings (approximately US$ 3.6 million).

Kenya is a member state of COMESA and the East African Community, both of which have competition regimes that apply to undertaking operating in Kenya. The application of those competition regimes to any regional merger or acquisition should therefore be assessed where necessary.

Documents ordinarily produced and executed at signing meetings include the board resolutions approving the transaction and authorizing the entry into the transaction documents, share purchase agreement, and disclosure letter. Documents ordinarily produced at closing meetings include board resolutions of the target company (approving the transfer of shares, the resignation and appointment of directors, and authorizing the entry into the company’s register of members), share transfer forms, share certificates, directors’ resignation letters and accompanying statutory declarations waiving any claims against the company.

There is no gap requirement between signing and closing. However, provisions are generally made in agreements to provide sufficient time for parties to obtain any required regulatory approvals, e.g., a merger approval from the Competition Authority of Kenya.

There is no regulatory requirement.

Corporate parties will normally be required to produce a certified board resolution approving the transaction and authorising an individual director (or directors) to execute the documents on behalf of the company. A company can also grant a power of attorney authorizing its officers or a third party to execute transaction documents on its behalf, but this should be accompanied with the certified board resolution authorizing the issuance of a power of attorney. If the asset to be transferred is land, the power of attorney will need to be registered in the Registry of Documents for a land registry to effect a change of ownership.

Kenyan law makes a distinction between deeds and simple contracts with the former requiring additional execution formalities. A deed needs to be executed in accordance with the Companies Act and the document must state clearly that it is a deed and is executed and delivered as such. Deeds are utilized in limited but notable instances such as the transfer of an interest in land, granting powers of attorney, securities (mortgages and debentures), and instruments of their release, as well as where the contract would otherwise be void for want of consideration.

A simple contract or deed may be executed by a single director in the presence of a witness who attests the signature or two authorized signatories. The former is usually used by sole director/shareholder companies.

Both a simple contract and deed may be executed by a person acting pursuant to a power of attorney granted by a company.

Simple contracts can be executed by the individual signing. In order to execute a deed, an individual must sign it in the presence of a witness to attest their signature.

A foreign company must execute documents in accordance with its constitution and the law of its jurisdiction. In respect to land, if the document is executed outside the country, it must be endorsed by a notary and accompanied with the notarial certificate failure to which the instrument shall not be registered.

Notaries are not involved unless the transaction has an overseas element (see above).

A notary cannot change the terms of a deal.

The notary’s fee is negotiable with the notary public.

No. The execution of agreements in counterpart obviates the need for original documents at the time of closing. However, with respect to regulatory approvals requiring notarized documents to be submitted, the interval of delivery of the original notarized document can occasion a slight delay.

Company officers (directors and company secretary) are typically appointed through a board resolution by simple majority although the articles of association may require that shareholders make board appointments. Company officers and directors can be removed by shareholders through an ordinary resolution (by a majority of not less than 50%) at a meeting of the company.

The following formalities are required to transfer title to shares in a company: 1. execution of a share transfer form;
2. production of original share certificate; 3. evidence of payment of stamp duty on the share transfer form by the buyer (stamp duty is to be paid within 30 days of being executed in Kenya or if not executed in Kenya, within 30 days after the share transfer form is received in Kenya); 4. target company’s board approval of the transfer and issuance of share certificate to the buyer; and 5. registration of the buyer's name on the company's register of members.

An individual can donate a power of attorney to a third party to execute on their behalf. The power of attorney will need to be signed by the individual and their signature witnessed by an advocate or notary if the power of attorney is signed outside Kenya.

A company can also appoint a third party to execute transaction documents on its behalf by way of a power of attorney. It is statutorily recognized under Kenyan company law; however, its utilization remains subject to the articles of association of a company which may grant or restrict the power to donate a power of attorney.

A power of attorney will be restricted to the extent of the terms of the instrument limit the attorney

Faxed and emailed documents are admissible in Court.

Kenyan law recognizes advanced electronic signatures which should be:

1. uniquely linked to the signatory;
2. capable of identifying the signatory;
3. created using means that the signatory can maintain under their sole control; and
4. linked to the data to which it relates in such a manner that any subsequent change to the data is detectable.

Nevertheless, the court may request verification which can be fulfilled by the presentation of the electronic signature certificate or by a person applying the procedure listed on the electronic signature certificate to verify the electronic signature claimed to have been affixed on the document.

To be valid in Kenya an electronic signature must be issued by a service provider certified by the Communications Authority of Kenya.

Deeds and simple contracts can be executed in counterpart. The compiled counterparts will constitute the agreement.

An undertaking can be given by an advocate which undertaking is limited to matters strictly within their control. The penalties for breach of an undertaking are severe and include the advocate being sued by a party to the transaction for breach of the undertaking and subject to disciplinary proceedings.

Agreements can incorporate escrow arrangements to facilitate closing. Usually, it requires the parties to preposition documents and/or funds subject to the fulfillment of a condition, e.g., obtaining regulatory approval.

Once the share transfer form is stamped, the entry into the company’s register of members is the only formality required. Even so, the company’s records at the Companies Registry will need to be updated to reflect the transfer when a third-party search is conducted on the company.

There are no rules governing the issuance of legal opinions in Kenya. Nonetheless, legal opinions on due execution are customarily issued in cross-border transactions.

A company is required to keep a register of its beneficial owners and file it with the Registrar of Companies. Any amendments to the register must be filed with the Registrar within 14 days of the change.

The factors that will affect the timetable of a share and asset sale is the period of time required to obtain regulatory approval and, with respect to land, the period of time to effect the transfer at the local land registry.

The competition laws of Kenya prohibit provisions that restrict competition if they distort or lessen competition in trade in any goods or services in Kenya. Nonetheless, non-competes are incorporated in agreements in Kenya and may be subject to challenge. Where an agreement contract contains non-compete provisions, the High Court of Kenya has the power to declare the provision void if the court is satisfied that the provision is not reasonable (even if the relying party is entitled to the protection). The High Court in reaching a determination will take into consideration (a) the nature of profession, trade, business, or occupation concerned, (b) the restrictive period, (c) all the facts of the case, and (d) public interest.