New Bill Lowers Threshold for Squeezing Out Minority Shareholders

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Starting and running a company successfully in Kenya is a risk that many entrepreneurs have not shied away from. But there is a lot shrouding company shares and proprietorship. On matters ownership, The Statute Law (Miscellaneous Amendments) 2019 introduced a number of key amendments to the Companies Act.

The amendments were targeted on shareholder disclosures, Mergers and Acquisition transactions and continuing compliance obligations of companies in Kenya. The national assembly adopted legislation requiring additional disclosures on beneficial ownership of shares in Kenyan companies. Companies are now required to maintain a register of the beneficial owners of shares and to present copies of this register and any amendments to it with the Registrar of Companies, failure to which one would be slapped with a Ksh 500,000 penalty.

The issue of minority shareholders being bought off a company was addressed in the bill.  Previously, minority shareholders in a company could only be squeezed out if an offer was made to acquire shares in a company and shareholders holding at least 90 percent of the offer shares accepted such an offer, as a minority shareholder cannot make meaningful participation in the company.
The 90 percent threshold has now been reduced to 50 percent. Meaning, shareholders holding less than 50 percent of a company can effectively be squeezed out if an offer is accepted by shareholders holding at least 50 percent of the company.

Experts say this new amendment will have a material impact on mandatory takeovers for publicly listed companies as it substantially lowers the threshold for squeeze-outs of minority shareholders and could spark a rise in shareholder activism with respect to public company takeovers. It is also likely to have an impact on how M&A transactions are structured going forward.

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