PEVC funds generally prefer to invest in a Limited Company so that they can own shares in a Limited Company instead of being a partner for an LLP. In addition, a Limited Company can be listed on a stock exchange, which makes exiting the portfolio company more convenient; and a Limited Company in Kenya also enjoys minority protection provisions<sup>92</sup> under the Companies Act,<sup>93</sup> which are not contained in the LLP Act. A PEVC fund would therefore need to neogtiate for wider protections in the partnership deed.

# _Corporate Governance of Portfolio Companies_

In Kenya, a combination of the Companies Act of 2015 and a CMA issued Code on Corporate Governance provides a good basis for corporate governance within PEVC portfolio companies. The Companies Act of 2015 is still new, but is very clear on the duties and responsibilities of the directors: directors have a fiduciary duty, and duty of skill, care and diligence in exercising their responsibility to the company; and they may be held personally liable when companies are found guilty of committing offences under Kenyan tax and criminal laws. In addition, the Companies Act requires Directors to disclose personal interests in matters discussed by the board; and the articles of association may prohibit Directors from voting on such matters or being counted for quorum. The shareholder agreement may also require PE-appointed directors to disclose their appointments to the boards of other portfolio companies. In addition, the CMA published a new “Code of Corporate Governance Practices for Issuers of Securities to the Public, 2015” (“Code”) in March 2016. The Code, which applies to listed and non listed companies that are issuing securities<sup>94</sup> to the public, has robust and detailed corporate governance guidelines and incorporates global emerging trends in corporate governance.<sup>95</sup>

# _Property Rights_

PEVC investors face due diligence challenges in Kenya when evaluating investment opportunities, particularly related to property. Property due diligence in Kenya is generally undertaken through title searches at the lands registry. However, land registries records in Kenya are in a precarious state, and there are documented irregularities which make it difficult to establish legitimate ownership; and ascertain if planning and environmental laws have been complied with, if diligenced properties are subject to multiple title allocations, or whether the records have been forged. On the plus side, most public services in Kenya are now available online, which has made service times more efficient as well as less susceptible to corruption.

# _Intellectual Property (IP)_

PEVC investors in Kenya are assured of international standards of intellectual property (IP) rights protection because Kenya is a signatory to international IP treaties. Kenya is a member of the World

> 92 For example sections 22, 63, 393, 407 on changes to a company that require special resolutions, sections 398 and 780 on the rights of a member to make an application to court, section 34 on the right of a member to bring proceedings to restrain the acts of a director that are beyond the directors’ power, section 277 on the rights of members to require directors to convene a general meeting and section 23 on the effect of an amendment to the articles of association on a member.

> 93 The underlying principle under the Companies Act is that the affairs of a company are managed by its board of directors and that a majority of shareholders can pass most resolutions required to be passed by shareholders. 94 “Securities” is defined in the CMA as including “debentures, shares, bonds, commercial paper, or notes issued or proposed to be issued by a body corporate”.

95 The Code is predicated on an ‘apply or explain’ principle. As such the portfolio companies isuing securities are required to either apply the Code fully or have to explain to the CMA, the reasons why the Code has not been applied in any particular circumstance.

43