Mergers and Acquisitions
A business may be acquired in whole or in part through the purchase of its shares or assets. Although other business forms can be merged or acquired, most mergers and acquisitions relate to companies limited by shares whether private or public.
Mergers and acquisitions exceeding certain thresholds require approval by the Competition Authority. Certain mergers and acquisitions that fall beneath the prescribed threshold would still require notification and express exclusion from the Competition Authority. Similarly, acquiring a controlling stake in various regulated companies such as banks, insurance companies and capital markets intermediaries are subject to approval by the relevant regulators.
The COMESA Competition Rules also apply to Kenyan mergers with a regional dimension.
The acquisition of a company can be through the transfer of shares from the existing shareholder(s). Alternatively, the acquirer may subscribe for new shares in the capital of the company. A combination of both methods may also be used. Stamp duty is applicable where there is a transfer of shares or where there is an increase in share capital. Share Sale and Purchase Agreements or Share Subscription Agreements are usually prepared for such transactions depending on how the shares are acquired.
Business Assets Sale
All or some assets of a business may be acquired. Where parties agree to transfer only some assets and not all, only the contracts relating to the transferred assets need be transferred or re-executed. Unless otherwise agreed, the seller remains liable for certain obligations. The business and employees of the seller may also be transferred. However, employees have a right to decline to be transferred where there is a change of employers.
Usually, a Transfer of Business Assets and Liabilities Agreement is prepared for such transactions. The Transfer of Businesses Act applies where there is a transfer of business or assets.
Taxation of Assets or Share Transfers
The purchase of a business where both the vendor and the purchaser are registered for VAT and the business is sold as a going concern may be exempt from VAT. Where the assets include immovable property such as land then the transfer of such assets may be subject to stamp duty. Share transfers may also attract stamp duty; however, waivers and exemptions may be granted in certain circumstances.