The Companies Act, Cap. 486 (Act) imposes obligation on all registered companies to prepare and file financial statements annually as part of their statutory compliance requirements. These provisions are set out under sections 683 to 689 of the Act.

While many companies comply with filing annual returns, compliance with financial statement filing is comparatively lower. This creates a compliance gap, as both requirements are equally mandatory under the law.

Statutory obligation to prepare and file financial statements

Section 633 (3) requires directors to ensure that the first accounting reference period of a company is a period of at least six months after the date of its incorporation and not more than 18 months after that date.

Section 636 requires every company to prepare annual financial statements that give a true and fair view of its financial position and performance.

These financial statements must be accompanied by the necessary reports, including the directors’ report and, where applicable, the auditor’s report.

Under section 684, companies are required to lodge these financial statements with the Registrar of Companies (Registrar) within prescribed timelines:

• Private companies: within nine months after the end of the financial year.
• Public companies: within six months after the end of the financial year.

Failure to comply with the requirement to lodge financial statements under section 683 attracts significant penalties. Each person who was a director immediately before the filing deadline commits an offence and, upon conviction, is liable to a fine not exceeding KES 200 000. It is not a defense to argue that the financial statements were not prepared. However, a director may rely on a defense if they can demonstrate that they took all reasonable steps to ensure compliance before the deadline.

Responsibility of directors

The obligation to comply rests squarely with the directors. They must ensure that proper accounting records are maintained and that financial statements are prepared and filed on time.

Lodgement requirements for companies subject to small companies’ regime

The Act recognises that companies operate at different scales and therefore provides tailored requirements for small companies, unquoted companies, and quoted companies under sections 686 to 688. Small companies benefit from simplified financial reporting obligations and may, in certain circumstances, be exempt from the requirement to have their financial statements audited. These measures are intended to reduce the compliance burden while maintaining appropriate levels of transparency.

Under section 624 of the Act, a company qualifies as a small company in a financial year if it satisfies two or more of the following conditions:

• It has an annual turnover of not more than KES 50 million;
• The value of its net assets, as reflected in its balance sheet at the end of the financial year, does not exceed KES 20 million; and
• It has no more than 25 employees.

These simplified thresholds demonstrate that the Act considers the capacity of smaller businesses and adjusts compliance requirements accordingly. As such, companies are expected to take advantage of these proportionate frameworks and ensure that they comply with their statutory obligations.

Lodgement requirements for foreign companies (Branch)

Foreign companies registered under the Act (Branch) are also required to maintain financial reporting compliance. Section 987 of the Act stipulates that a registered foreign company shall, at least once in every calendar year and at intervals of not more than 15 months, lodge a copy of its financial statement made up to the end of its last financial year together with a statement in writing, supported by a statutory declaration, verifying that the copies are true copies of the documents so required.

The responsibility for compliance rests with the foreign company and its authorised representatives in Kenya. Failure to lodge the required financial statements within the prescribed period constitutes a breach of the Act and may expose the company and its officers to the applicable statutory penalties and enforcement measures.

Consequences of non-compliance

Section 635 of the Act specifically requires directors to prepare financial statements for each financial year. Failure to do so constitutes an offence, and each defaulting director is liable, upon conviction, to a fine of up to KES 1 million. Where the failure continues after conviction, additional penalties apply, including fines of up to KES 100 000 per day for continued non-compliance.

Failure to file financial statements and within the prescribed timelines may result in statutory penalties, including fines imposed on both the company and its directors. Each person who immediately before the end of the relevant period was a director of the company commits an offence and on conviction is liable to a fine not exceeding KES 200 000. If the default continues after conviction, each director may be liable to a further fine not exceeding KES 20 000 for each day the default continues.

Whilst the Companies Act provides for the above penalties, it is important to note that, in practice, the Registrar has not enforced these sanctions. However, non-compliance may still have significant consequences. For example, when a company applies for voluntary strike-off, the Registrar may require all outstanding financial statements to be filed before processing the application or may cite the failure to file financial statements as evidence of non-compliance and decline to proceed with the application until the default is remedied. Companies are therefore encouraged to comply with their statutory filing obligations to maintain a good standing.

Key takeaways

In summary, compliance with the annual financial statement filing requirements is an essential aspect of corporate governance under the Companies Act. Although enforcement in practice may vary, companies should treat these obligations as mandatory and ensure that their directors, officers and authorised representatives take proactive steps to meet the prescribed filing timelines and maintain the company’s good standing.

Accordingly, the key takeaways from the statutory filing requirements are as follows:

• Preparing and lodging financial statements is a mandatory annual compliance requirement under the Companies Act, Cap. 486.
• Private companies must lodge financial statements within nine months after the end of the financial year, while public companies must do so within six months.
• Small companies may benefit from simplified reporting requirements, but they remain subject to the applicable statutory filing obligations.
• Directors and, in the case of foreign companies, authorised representatives should take proactive steps to ensure time

Written by Elizabeth Karua, Partner, Christine Mbuvi, Senior Associate and Damaris Okeyo, Associate, Bowmans Kenya