By Jerameel Kevins Owuor Odhiambo
The landscape of corporate ownership in Kenya is a dynamic one, constantly shaped by the transfer of shares. As of recent data, with the economy rebounding and investor confidence on the rise, share transfers, both for private and public companies, are a common and critical part of business transactions. The process, while seemingly straightforward, is a multifaceted affair governed by a robust legal framework, primarily the Companies Act, 2015, and is fraught with specific procedural requirements and significant tax implications. Failing to adhere to these can invalidate the transfer, leading to severe penalties and legal quagmires for all parties involved. Therefore, understanding the entire journey from the initial agreement to the final registration and all the financial considerations in between is crucial for any investor or business owner in Kenya.
The journey of a share from one owner to another is a meticulous one, differing slightly depending on whether the company is private or public. For private companies, the process is largely guided by the company’s own Articles of Association (the company’s internal rulebook) and any existing shareholders’ agreements. The Articles often contain restrictions, such as pre-emptive rights which give existing shareholders the first option to buy the shares, and a requirement for board approval of the transfer. The first step is for the transferor (seller) and transferee (buyer) to review the company’s Articles of Association and any relevant agreements to ensure compliance with any pre-existing conditions. Following this, a Share Purchase Agreement (SPA) is drafted and executed. This legally binding document outlines the terms of the sale, including the number of shares, the purchase price, and any conditions precedent.
The transferor must formally notify the company of their intent to sell. The board of directors then holds a meeting to approve the transfer. If pre-emptive rights exist, the shares must be offered to the other shareholders first. Minutes of these meetings are essential for record-keeping. A Deed of Transfer of Shares (also known as a share transfer form) is prepared and signed by both the transferor and transferee. It must also be witnessed. For private companies, it’s often necessary to get an independent valuation of the shares to determine their fair market value, as this value is used to calculate the taxes due. This is a crucial step. The transfer documents, along with the valuation report and other supporting materials, are submitted to the Kenya Revenue Authority (KRA) for assessment of Stamp Duty. The documents are then “franked” or stamped to show the duty has been paid. Following this, the franked documents, board resolutions, and an updated CR12 (a list of the company’s directors and shareholders) are filed with the Companies Registry on the e-citizen platform. Once the transfer is approved and filed, the company’s secretary updates the register of members to reflect the new ownership. The old share certificate is canceled, and a new one is issued to the transferee, officially completing the process.
For shares in a public company listed on the Nairobi Securities Exchange (NSE), the process is generally more streamlined and electronic, as the shares are held in a Central Depository System (CDS) account. The most common method of transfer for public company shares is through a stockbroker on the NSE. The shares are bought and sold electronically, and the transfer is automatically managed by the Central Depository and Settlement Corporation (CDSC). For transfers not executed through the exchange (known as private transfers), the parties must still use a stockbroker or custodian. A CDS 4 form is completed and signed by both the transferor and transferee and delivered to the CDSC through their respective Central Depository Agents (CDAs), i.e., their stockbrokers. The CDSC processes the transfer electronically, ensuring the shares are debited from the transferor’s account and credited to the transferee’s account. This process requires prior approval from the Capital Markets Authority (CMA) for private transfers.
The tax regime for share transfers in Kenya is twofold, primarily involving Stamp Duty and Capital Gains Tax. The transferee is generally responsible for paying Stamp Duty, which is levied at a rate of 1% of the nominal value or the consideration of the shares, whichever is higher. This tax must be paid for the transfer to be legally valid. Non-payment can lead to fines and render the transaction null and void. The transferor (seller) is liable for Capital Gains Tax (CGT), which is a tax on the net gain realized from the transfer of property. The rate of CGT in Kenya is 15% of the net gain, which is calculated as the transfer value (sales proceeds) minus the adjusted cost (acquisition cost plus any incidental costs)
This is a critical distinction. A gain on the transfer of shares of a private company is subject to CGT at the rate of 15%. However, a gain on the transfer of shares traded on any securities exchange licensed by the CMA (e.g the Nairobi Securities Exchange) is exempt from CGT. This exemption was introduced to encourage trading and investment in the public market. Several key exemptions, as enshrined in the law, are important to note: The transfer of shares to a beneficiary in the course of the administration of a deceased person’s estate is exempt. However, if the beneficiary later sells those shares, any gain is subject to CGT. The transfer of assets between spouses, former spouses as part of a divorce settlement, or to a company where spouses hold 100% shareholding is also exempt. Transfers of property as a result of internal restructuring within a group that has existed for at least 24 months and does not involve a third-party transfer are also exempt.
Beyond the legal and financial rigmarole, the transfer of shares is deeply human. It can represent a founder’s bittersweet exit, a family’s generational wealth transfer, or an investor’s bold bet on a company’s future. The meticulous paperwork and legal hurdles are not just bureaucratic exercises; they are safeguards to protect the rights of all involved—the seller, the buyer, and the company itself. By humanizing this process, one appreciates that behind every form and every signature is a story of ambition, trust, and the pursuit of a new chapter. The legal framework, therefore, serves as a quiet but powerful guardian of these personal and financial narratives.
The writer is a legal researcher and writer.
