In a move to curb the use of shell companies in procuring Government tenders, Attorney General Githu Muigai gazetted new regulations applicable when registering companies in Kenya. The new regulations that are part of the amendments to the Companies Act 2015 came into force only recently after being gazetted in November 2015. The regulations were highlighted by Business Daily yesterday.
According to Business Daily’s article, the previous regulations for registering companies in Kenya made it easy for those intending to fleece the Government to register shell companies and use those companies to move millions and billions of shillings from one bank account to the next as was the case with the NYS scandal. Since the shell companies did not disclose their physical addresses, it became difficult for the relevant Government agencies to track them down. In the new rules, those registering companies in Kenya are now required to provide a physical address to prove the that the company has a physical office.
“The rules, contained in fresh amendments to the company registration form, now make it mandatory for a firm to disclose its physical location down to the specific room and floor of a building as opposed to the current provisions that left the disclosure of such details to a company’s discretion”, Business Daily reported. Also required by the new regulations is the disclosure of number of employees.
Although on the surface value these rules may seem well intended, commenters at the Business Daily article faulted them this way; “nothing can stop a tenderpreneur from incorporating 5 shell companies, rent a stall and purport to be an office, or get a proper office for 1 but co-shared by 10 briefcase entities.” And; “New rules and laws are absolutely useless when the previously existing ones have completely failed to nail any high corruption suspects due to systematic non enforcement. Proper enforcement is the key”.
Other than the fact that the new regulations for registering companies in Kenya will not stop any scrupulous business person from pursuing his or her corrupt motives, the regulations are also blind to the fact that we live in an Internet age where most businesses do not need to have a physical office. I for example worked for an International chemical manufacturing company that did not have a company’s physical office neither a factory of its own. The company did not care where employees operated from as long as employees were online through Skype, and were able to travel to customer locations whenever required. To manufacture the chemicals for customers, it rented third party factories and manufactured the chemicals on demand. Despite serving customers in over 50 countries, the company had less than 20 employees globally. I was the only one in Africa – talk about cost saving!
If a chemical manufacturing company that has presence in multiple countries can effectively operate without a physical office, what makes the Attorney General and the drafters of the company’s act believe that genuine companies must have physical offices? Must software developers, Content creators like bloggers, or anyone that operates a business where there is no need for a customer to visit their offices open a physical office in order to operate? The answer is a big NO.
Currently I am a Director in two companies, companies that have operated effectively since 2013, and none of them have a physical office. Although one of the companies deal in physical but digital goods supplied to enterprise customers, the company does not necessarily need a physical office since none of our customers have a need to visit us in our offices. This is because the Internet has allowed us to receive and respond to customer enquiries either through emails or phone calls, then thanks to mobility we are able to meet with customers in their offices or if need be in restaurants and hotels.
The fact that the new regulations require that someone registering companies in Kenya must disclose a physical address means drafters of our laws and regulations are old school buddies completely unaware of how the Internet and smart devices have changed communication and business operations. They are not aware that an individual can work and earn income without having to leave his house for days – that our beds, living room coaches, and or a private corner at home have become our offices.
Dear law makers, kindly try to live in the current age before coming up with completely nonsensical regulations.