Director & Shareholder Rights In Kenya:
So you’ve just had a baby, given it a befitting name, obtained the birth certificate, and you and your partner are gearing up to celebrate the baby’s first birthday. Raising a baby has turned out to be a rollercoaster of mental, physical, emotional and financial highs and lows, but equally fulfilling and just like your post on “X” said, (you know the one with only one “like” from your partner) during Mothers Day, “sometimes its messy but wouldn’t change it for the world”.
Then just as you’re starting to think that you’re finally getting the hang of it, the cracks starts to show :
- Your partner believes that you’re not raising the baby right or with the values you’d both set during the courtship phase.
- Your in-laws feel their rights as the baby’s aunties and uncles are being infringed upon.
- Your daycare nanny disagrees with the way you enforce and/or interpreted her employment contract.
- Your housekeeper feels that you’ve delegated the entire child raising duty to her, without commensurate pay.
- Your nieces and nephews take every chance they can get to pinch the baby formula.
- You don’t like the way your partner has been siding with the in-laws (or “opps” as your formula pinching nieces and nephews like to say) and as far as you are concerned, the in laws are starting to get a little too familiar and entitled.
- At the birthday party, your partner flirts brazenly with your peers.
The drama aside, the above describes what most start-ups and even seasoned companies experience as regards the relationship between directors and shareholders and their respective rights. In this scenario:
- Baby represents the company.
- Partner represents the majority shareholders.
- In-laws represent minority shareholders.
- Nieces and nephews represent employees.
- The nanny and housekeeper represent the directors.
See our previous Article here on how such instances can be mitigated by having in place a Shareholders Agreement.
What rights accrue to shareholders in Kenya?
With the ownership of shares comes rights, and while shareholder rights depend on the class of shares held, generally, the following rights accrue to shareholders in Kenya:
- Income– right to receive dividends if and when declared at general/shareholders meetings.
- Voting– right to receive notice of, attend and vote at general/shareholder meetings either personally or through appointed proxies. This also includes the right to demand a poll for voting on any resolution which shareholders feel is ruinous to their interests.
- Delegation– right to appoint proxies as representatives of the shareholders. This includes the right to nominate an alternate director from the Board if the Articles of the company so allow.
- Company updates– right to receive reports and access to statutory books and records of the company. This includes the right to apply for investigation of the affairs of the company when circumstances call for it.
- Derivative suits– right of a shareholder to institute a derivative claim upon obtaining the court’s leave to do so on behalf of the Company and upon meeting the threshold set out under section 241(2) of the Companies Act 2015.
What are the rights of a director in Kenya?
- The right to access the company’s documents and financial records.
- The right to elect a board chairman.
- The right to call and participate in board meetings and decisions.
- Security of tenure- a director has the right to remain in office until their contract expires, is terminated or he voluntarily resigns.
- Right to inspect the board minutes and minute book.
- Right to have their dissent recorded.
- Right to claim travel, lodging and other expenditure personally incurrent in the course of company duty.
- Right to request an alternate director where the Companies Articles allow for such.
What happens when the rights of shareholders and directors clash?
Director and shareholder disputes can arise due to various factors, including: differences in strategic vision; mismanagement; conflicts of interest; breach of fiduciary duties; communication breakdowns; personal animosities; and disagreements over company policies, financial decisions, or future direction.
Where the rights clash, its important to envision this and have in place a shareholders agreement to avoid such pit falls in future.
or more insights pertaining to this matter, you can reach the writer at Mwenda@mmsadvocates.co.ke . You can also contact us at MMS Advocates, Lower Duplex Apartments, LOWER HILL ROAD, or email us at info@mmsadvocates.co.ke