Under the provisions of the Companies Act, companies are obliged to keep certain books of accounts in the English language.
Every company must keep proper books of accounts with respect to:
- All sums of money received and expected by the company and the matters in respect of which the receipt and expenditure takes place.
- All sales and purchases of goods by the company.
- The assets and liabilities of the company
These books must give true and fair view of the state of affairs of the company and explain its transactions.
the books must be kept at the registered office or at such other place as the directors may deem it fit and must be open for inspection by directors at all times.
With the Registrar’s consent, however, the books may be kept outside Kenya but at intervals not exceeding 6 months they must be brought to Kenya at a place open for inspection by directors at all times.
Failure to keep these books of accounts renders every director in default liable to a fine. However the accused escapes liability by proving that another competent and reliable person was charged with the responsibility.
Generally, the accused will not be imprisoned unless the offence was committed willfully.
The directors of every company must lay before all at a general meeting a balance sheet and a profit and loss account or an income and expenditure account within 18 months of incorporation and at least once every calendar year. It is the duty of the directors to ensure that the necessary accounts are prepared every calendar year, failing which, every director in default liable to fine. However the director escapes liability by proving that a competent and reliable person was charged with the responsibility.
The balance sheet of the company shall give a true and fair view of the state of affair of the company as at the end of the financial year and the profit and loss account must give a true and fair view of the profit and loss of the company for the financial year.
A holding company’s directors shall ensure that except where in their opinion there are good reasons against it, the financial year of each of its subsidiaries shall coincide with the company’s own financial year.
At the end of the financial year, the directors of the holding company must lay group accounts of the company and its subsidiaries before AGM of the holding company.
The group accounts laid before the meeting must comprise consolidated accounts consisting:
- A consolidated balance sheet dealing with the state of the affairs of the company and all the subsidiaries dealt with in the group accounts.
- A consolidated profit and loss account dealing with the profit or loss of the company and those subsidiaries.
The group accounts must give a true and fair view of the state of affairs and profit and loss of the company and the subsidiaries dealt with as a whole.
The group accounts of a company need not deal with the subsidiary if the directors are of the opinion that:
- It is impracticable.
- It will be of no real value to members of the company in view of the insignificant amounts involved.
- It would involve expense or delay out of proportion to the value the member of the company.
- The result will be misleading.
- The result would be harmful to the business of the company or any of the subsidiaries.
- The business of the holding and that the subsidiaries are so different that they cannot reasonably be treated as a single undertaking.
Format of Accounts
The balance sheet of the company must be signed by two directors on behalf of the board or if there is only one director. In case of a bank, it must be signed by at least three. If there is only one director present in Kenya he must sign the balance sheet but attach a statement explaining the non-compliance with the law.
It is a criminal offence to issue circulates or publishes an unsigned balance sheet. The company and every officer in default are liable to a fine.
Annexures to the Balance Sheet
Any profit and loss account not incorporated in the balance sheet or profit and loss account or group accounts must be annexed to the balance sheet: • The auditor’s report.
- The director’s report must be annexed stating the opinion of the affairs of the company and amount if any recommended as dividend and proposed as reserves. It is a criminal to circulate issue, publish a copy of the balance sheet without the annexure. The company and every officer in default are liable to a fine
A copy of every balance sheet including its annexure as required by law must be sent to every shareholder of the company, every debenture holder and all other persons so entitled at least 21 days before the date of the meeting.
Purpose of profit and loss account
- It shows the profit and loss of the company that is the difference between the revenue for the period covered by the account and the expenditure chargeable in the period.
- To explain the company’s transactions, for example, all money received and spent and what matters, all sales and purchases of goods
- To present the true and fair view of the profit and loss of the company for the financial year 4. To safeguard the interest of creditors, investors and shareholders
- The profit and loss statement shows:
- The amount charged to revenue by way of provisions for depreciation renewals or diminution in value of fixed assets
- The amount of interest on the company’s debentures and fixed loans
- The amount charged against income tax and other taxation on profits
INVESTIGATION AND INSPECTION OF COMPANY AFFAIRS
Investigations into the affairs of a company means an investigation of all of its business affairs- profits and losses, assets including goodwill, contracts and transactions, investments and other property interest, its management and also affairs of its subsidiaries.
The affairs of a company may be investigated by:
- The Registrar;
- An inspector appointed by the Registrar; or
- An inspector appointed by the Court (the High Court). Investigation by the Registrar of Companies
.Non-compliance with provisions of the Act
If the Registrar has reasonable cause to believe that the provisions of the Act are not being compiled with by the company, he may initiate an investigation into the Company’s affairs.
If a document submitted to the Registrar does not disclose a full and fair statement of the matters it relates to, the Registrar may initiate an investigation.
In either case, the Registrar directs the company to produce books and furnish him with information or explanations as he may specify.
The same must be produced or furnished within the stipulated duration. It is the duty of the officers and agents of the company to produce the books and furnish him with information and explanations. If on examining the books and consideration of the information and explanation an unsatisfactory state of affairs is disclosed, the Registrar must make a report to the Court.
.Ownership of shares and debentures
If there is good reason, the Registrar is empowered to investigate the ownership of any shares or debentures of a company by demanding information from persons who are or have been interested in the securities or have acted as agents or advocates for the interested parties.
Such persons must give the Registrar such information as is reasonably in their possession.
However, if the information is not forthcoming, the Registrar is empowered to place restrictions on the shares involved in which case:
- Any transfer of the shares is void.
- The right to vote on the shares is un-exercisable.
- The sums due on the shares are not payable.
- No other shares can be issued in respect of those shares.
Investigation by inspector appointed by the Registrar
If there is good reason, the Registrar may appoint one or more competent inspectors to investigate and report on the membership of the company for purposes of determining the true persons who:
- Are or have been financially interested in the success or failure of the company b. Control the company.
- Materially influence the policy of the company.
The Registrar is empowered to determine the scope of the investigation.
The Registrar may appoint an inspector under this section on application of not less than 200 members or holders of not less than 1/10th of the issued share and not less than 1/5th of the number of members.
Investigation by inspector appointed by the Court
The High Court has jurisdiction to appoint an inspector to investigate a company’s affairs in the following circumstances:
Application by members
The application may be made by not less than 200 members or holders of not less than 1/10th of the issued shares or not less than 1/5th of the number of members.
The application must be supported by sufficient evidence to justify an investigation.
However, the applicant will be required to furnish the Court with security of costs.
The Court must appoint an inspector if members have passed a resolution that the affairs of the company be investigated by an inspector.
The Court may appoint an inspector if it appears from the Registrar’s report made under section 164 that:
- It is desirable to do so.
- Members have not been given all the information on the affairs of the company which they reasonably expect.
- Persons involved in the formation or management of the company have been guilty of fraud, misfeasance or breach of duty toward the company.
- Any business of the company has been carried on:
- With the intent to defraud its creditors or any other persons.
- For a fraudulent or unlawful purpose.
- In a manner oppressive to some of the members.
- The company was formed to pursue a fraudulent or unlawful purpose.
Duties of an Inspector
Once appointed, the inspector enters upon his obligations without undue delay and commences the investigation.
The inspector must, if required, make an interim report but at the end of the investigation must make a final report which must be forwarded to the Court.
The Court may deliver a copy thereof to the Registrar. Powers of the Inspector
- An inspector is empowered to investigate the holding or subsidiary company of the company under investigation if such investigation is necessary.
- The inspector also has the power to administer oath to witnesses e.g. company members and officials.
- Examine persons under oath.
- Require officers of the company to produce books and furnish such information or explanation as may be necessary.
- Apply to the Court to have persons whom he can’t examine, examined by the Court for purposes of the investigation.
Proceedings on the Inspector’s Report
- Criminal prosecution.
If the Court is of the opinion that a criminal offence has been committed, a copy of the report is forwarded to the AG, who may institute the appropriate criminal prosecution. It is the duty of the officers of the company to assist the AG in the prosecution.
- Petition for winding up.
if it appears to the AG that the company ought to be wound up, he may petition for its winding up on the ground that it is just and equitable to do so.
- Civil proceedings.
If it appears to the AG that an action ought to be instituted in the public interest, for the recovery of damages by the company for fraud, breach of duty or misfeasance or the recovery of property which the company has misapplied or retained by any person, the AG may institute the action in the name of the company.
Costs and Expenses of an Investigation
The costs of an investigation by an inspector appointed by the Court are in the first instance met by the Registrar who must be repaid by either:
- Any person convicted on criminal prosecution instituted by the AG on the basis of the report;
- Any person who is held liable in damages or to restore company property on the basis of proceedings instituted by the report;
- The company in whose name proceedings are instituted;
- The company being investigated; or
- The applicants for the investigations.
The Annual Return
Companies are required to file a return to the Registrar at least once every year.
A company having a share capital must once every year make a return to the Registrar with respect to:
- The registered office
- The register of members.
- The register of debenture holders.
- The register of charges.
- The register of directors and secretaries.
- A register of past and present members.
- A register of past and present directors and secretaries.
- A register on the total indebtedness of the company.
A company not having a share capital must once every calendar year make a return to the register on:
- The situation and postal address of the registered office.
- The situation and postal address of the registers of members, debenture holders, directors and secretaries, if not kept at the registered office.
- The statement of the indebtedness of the company.
Annexure to the annual return
Copies of the following documents, certified by a Director and the Secretary as true copies, must be attached to the annual return:
The balance sheet laid before the company in the general meeting and its annexures. ii. The directors report.
The auditor’s report.
If any document is in a foreign language a certified translation in English must be provided.
Time of the annual return
The annual return must be made within 42 days after the AGM of the year.
The copy submitted to the register must be signed by a director and the Secretary, failing which the company and every office in default are liable to a default fine.
Annual return of a private company
The annual return of a private company must contain or embody a certificate or certification by a director and the Secretary that the company has not since incorporation permitted the public to subscribe for its shares or debentures.
If the company has more than 50 members a director and the Secretary must certify