Two founders holding fifty-fifty, a family with everyone on the register, or an investor with a preference share class, the shareholding written at incorporation determines what happens in every disagreement that follows.
How should shareholding be structured?
The Companies Act 2015 allows different classes of shares with different rights to votes, dividends and capital on a winding up. Ordinary shares typically carry votes in proportion to holding; preference shares can rank ahead on dividends or returns. Equal split shareholdings should be approached with care, since they invite deadlock, and minority holders should consider protections such as weighted voting on defined matters or reserved-matter lists rather than relying on goodwill. A shareholders’ agreement can address what the articles leave open, exits, reserved decisions and dispute resolution (kenyalaw.org). The register of members and any share certificates should match the intended arrangement from the first day, since unwinding a wrong allocation is a registry process, not a handshake.
What duties do directors owe?
- Act within powers and in accordance with the company’s constitution.
- Promote the success of the company for the benefit of the members as a whole.
- Exercise independent judgment and reasonable care, skill and diligence.
- Avoid conflicts of interest and declare any interest in proposed transactions.
- Not accept benefits from third parties arising from the directorship.
What happens if duties are breached?
These duties are owed to the company, not to individual shareholders. A breach can expose a director to the company suing for loss, to disqualification in serious cases, and to orders requiring the director to account for gains. Conflicts are easier to manage before they harden: declaring an interest early, and recording it, is both a statutory expectation and practical protection. Insurance and indemnities can address some exposure, but they do not substitute for lawful process.
Documenting share rights and director processes properly at the start prevents most of these disputes. Our governance advisory practice advises boards and shareholders, and our banking and securities practice covers the financing side of new share issues.
For guidance on your specific situation, contact CS Advocates LLP, call, WhatsApp, or book a confidential consultation at our Westlands, Nairobi office.