COMPLYING WITH THE COMPANIES ACT; WHAT ARE THE OBLIGATIONS OF A COMPANY?

The Companies Act 2015 states that a company must prepare:

1. An annual financial statement;
2. Directors’ report; and
3. An auditor’s report on the financial statement and directors’ report.

A quoted company has to prepare more documents in relation to the above. They have to prepare:

1. An annual financial statement;
2. Directors’ remuneration report;
3. Directors’ report; and
4. An auditor’s report on the financial statement, directors’ remuneration report, and directors’ report.

Should directors sign the reports?

The Companies Act states that directors of a company must approve a company’s annual financial statement and choose one or more of the directors to sign the statement. Directors must sign their names on the balance sheet.

The Directors must also approve the director’s report and choose one or more of the directors to sign the report.

Are the reports subject to a vote at general meetings?

There is no provision that mandates Private Companies to present their financial statements and reports at general meetings.  For Public Companies, they must present their financial statements and reports at general meetings.

The Act however provides that a company must send out its annual accounting and financial statements to:

1. The members of the company;
2. Any holder of the company debentures; and
3. Every person entitled to receive notice of general meetings.

The Act further provides that the regulations MAY make further provisions on the lodging of financial statements before a general meeting, but the Companies (General) Regulations have no provision on the same.

Timelines for compliance.

The Act states that annual financial reports must be lodged with the registrar. The Act gives three sets of compliance deadlines, depending on different circumstances.

1. When a company is lodging its documents for the first time since incorporation, and its accounting period exceeds 12 months, the deadline is:
2. 9 months or 6 months from the first anniversary of the incorporation of the private or public company respectively; or
3. 3 months after the end of the company’s accounting period, whichever ends later.
4. Where it is not the first time (the company has lodged its documents before):
5. Private company – 9 months after the end of the accounting period; and
6. Public company – 6 months after the accounting period.
7. Where the company gave a notice shortening its accounting period; the deadline could be as specified in either 1 or 2 above, or 3 months from the date of the notice, whichever ends later.

Penalties for non-compliance.

If the annual financial statement and reports are not lodged before the deadline, all persons who were directors immediately before the end of the accounting period in question are liable on conviction to pay a fine not exceeding Kshs.200,000 each.

Where a court orders that the company complies with lodging these reports to the registrar within a period specified by the court, and the directors convicted of the offense do not comply with the order, they will be liable on conviction for a fine not exceeding Ksh.20,000 each.

The company, in such an instance, will be liable to a default penalty in addition to the liability of the directors. The amount is calculated in reference to the length of the period between end of the financial period in question and the time the requirement for lodging the reports will be complied with. Whether the company is private or public is also used to measure liability.