Introduction/Background
It is no longer necessary for a Kenyan incorporated company to have a ‘common seal’ or attach seals to documentation.
This follows from the changes brought about by the Business Laws (Amendment) Act, 2020 (the Amendment Act).
The powers and duties of the secretary depend on the size and nature of the company and the personal contractual arrangements that it makes with him/her. A Company Secretary has the power to countersign instruments to which the Common Seal has been affixed.
The custody of the Common Seal should be taken very seriously. Noting that the officers of the Company i.e. the directors or the Company Secretary should have access to the Common Seal or give authorization for its use. Whenever the Common Seal is used, a Director should sign and a Company Secretary or another director.
Legal Analysis
The SPECIAL ISSUE Kenya Gazette Supplement No. 26 (Acts No. 1) that was published on 20 March 2020 is amended by the deletion of the words “under its common seal” in Section 35 which relates to Company Contracts and Section 495 of the Companies Act, 2015 is amended by deleting the words “under the common seal of the company” and substituting the words “duly executed in accordance with section 37” which relates to Share certificates issued.
The effect of the amendments in the Amendment Act are that Section 35 of the Companies Act, Number 17 of 2015 (the Companies Act) now provides that a contract may be made “by a company in writing” or “on behalf of a company, by a person acting under its authority, express or implied.”
Section 37 the Companies Act now specifies that a document is validly executed by a company if it is signed on behalf of the company:
by two authorized signatories; or
by a director of the company in the presence of a witness who attests the signature.
In as much as there are laws that still require or permit the affixing of common seals, such as the Law of Contract Act (Chapter 23, Laws of Kenya) or various statutory forms under the Land Registration (General) Regulations, 2017 (pursuant to the Land Registration Act, Number 3 of 2012), we recommend that using a common seal is no longer required or permitted.
In Summary, contracts and share certificates are now valid and duly executed without the Common Seal.
It is intended at doing away with the expensive and cumbersome process of having a sealing device and red wafers on documents that have to be embossed and then witnessed by two directors or one director and the company secretary.
It additionally reflects the increasing use of technology to enable execution of documents; and aligning with global practice and make doing business in Kenya that much easier.
CONCLUSION
These amendments apply to all forms of companies formed and registered under the Companies Act, including private companies and public companies. The amendments do not apply to foreign companies registered under the Companies Act. Registered foreign companies may therefore continue to execute (including by way of common seals) as provided for in their constitutions lodged with the Registrar of Companies in Kenya and the laws of their jurisdictions of incorporation.
Though the change in law did not expressly provide for a requirement for companies to alter their articles of association in order to delete any reference to execution by way of a common seal, our view is the articles of association cannot supersede the Companies Act and we recommend that companies should now review their articles of association to conform to the law. Thus, there are no transitional provisions in the Amendment Act and we recommend that companies proceed to adopt the new modes of execution and to alter their articles.
Knowledge Tree Law Notes
