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LAW AS A CHANGE AGENT FOR SPORTS DEVELOPMENT

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There has been a lot of disgruntling about Kenya’s performance in the concluded 2012 Olympics. Undoubtedly Kenya’s performance at the Olympics was below par and much of this was attributed to mismanagement. Ironically this mismanagement comes at a time when the Sports Bill 2012 has been drawn up to manage and streamline sports in the country. The Bill was also created ensure that sports is harnessed for development. The Bill seeks for the creation of new institutions to manage sports in the country. One is the Kenya Sports Development Authority. The second is the National Sports Fund which is a trust body created to manage the funds pertaining to sporting activity in the country. It is proposed that the Kenya Sports Institute be created to provide for training for sports people. The Bill is very ambitious and the way it is structured may streamline sports management in the country. The Bill provides for arbitration of sports disputes and also charges the Minister in charge of sports to come up with a sports investment plan each year.

 

One of its salient provisions is that all associations must be registered under this Act. This means bodies like Kenya Athletes Association must be registered and they remain answerable to the authority.

 

If this bill is passed then the performance we witnessed in the concluded Olympics shall be a thing of the past.

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REAL ESTATE DEALS TO BE WARY OF

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Many real estate developers are coming up with many innovative real estate concepts for re-sale to and are also coming up with very ambitious ways of raising funds to enable them conduct the real estate developments. Other than the usual debt finance, joint ventures and off-sale purchases a new trend of financing is coming up which buyers should consider the legal risk before getting into them.

 

I saw a newspaper advertisement by a real estate developer inviting members of the public to buy shares within the developer and these shares were valued at the approximate price of each unit. The developer would then use the funds paid by shareholders to develop the homes for them and later on transfer the units to them. It does sound as innovative way of financing by real estate developers as the costs to the promoters of the developer are minimal the only cost to the promoters of the developer company being dilution of their shares as the prospective home owners buy shares into the company. However this kind of financing of subscribing into a developers shareholding for eventual home ownership is very risky as it may fall short of legal requirements.

In some cases, the real estate developer invites people to buy shares into their company and jointly undertake a project for capital gains purposes as opposed to home ownership. This means that the developer c alls the public to buy shares in the real estate company so as to invest in some real estate projects and later on re-sale the asset and distribute the proceeds. Whether the eventual goal of such financing is home ownership or capital gains, a lot more diligence should be observed on the part of the investors for various reasons.

 

Firstly not all companies are allowed by the Companies Act to make offers to the public for the public to subscribe to their shares. Only public companies have such privilege as private companies cannot offer shares to the public. Infact it is illegal for a private company to offer shares to the public.  The way you are invited to participate in buying into the real estate developer makes all the difference between legal and illegal. If the offer is construed to be private, such as between a group of friends then the offer is deemed to be private and therefore legal even if undertaken by a private company. However a public offer is one that is made in the public realm such as in newspaper advertisements, conferences, e-mails (depending on if the same was circulated generally or to a select group), websites and even through social media like facebook.  Then the same can be deemed to be a public offer and therefore can only be undertaken by a public company.

 

The provisions of the Companies Act will also guide the entire bid such that even if your eventual goal is to own your own home buy buying into a real estate developer, the Companies Act is what shall guide the relationship between you, the other home buyers and the promoters because according to law a company and its shareholders are two different people. What this means is that the law will not separate your individual interest in the unit assigned to you but will instead treat it as company property until the designate unit is transferred from the company into your name.

 

Armed with this information what should you look out for when entering such deals? One is to find out if the company is private or public and what kind of offer it is making. A private company cannot make a public offer. It is important to conduct a company search of the real estate developer to find out its promoters and who are its officials. The promoters would be the original owners of the company however you should also know that your co-buyers into this project as well as you will end up being the shareholders of the company. Find out how many shares are on offer and what their value is. It is important to undertake a valuation of the company according to its asset base or projected asset base and pro-rate this with the number of shares you will take so as to avoid over paying.

 

It is important to understand that with this type of concept you will not be treated as a home owner but as a shareholder of a company therefore you will carry all the risks a shareholder does. Therefore before buying into such a concept find out if the company has any liabilities and what other assets it has. Also find out what third party contracts it has and what other business it is doing. Such a concept can be workable if all the legal loopholes are sealed.

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GLOBAL PROTECTION OF YOUR INTELLECTUAL PROPERTY

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A lot of Kenyan businesses are coming up with products and services that are not only winning national acclaim but a lot of global acclaim too. Brands like MPESA have won several global awards and are an indicator that Kenyan businesses are coming up with innovative services and products for the global market.

 

Some businesses are rapidly expanding regionally and as they expand they export innovative products and services to other countries.  It is therefore important for such businesses to protect their innovative products and services not only locally but also in the foreign jurisdictions in which they intend to do business. This means that before you expand your business to a foreign country, first make sure you have sought legal protection for your innovations in the foreign country to minimise incidences of counterfeits and riding on goodwill. It is also important for inventors in the science and technology field to seek patent protection in as many foreign countries as possible where the innovation is commercially viable.  I came across a very interesting situation recently where a global giant wanted to enter the Kenyan market and infact did so without having protected its brand via trademark. One of its local competitors riding on this company’s goodwill started manufacturing goods with a similar name and similar brand. The global giant on finding this out sought to institute trademark infringement proceedings however could not do so because they had not registered their brand here in Kenya. Therefore to protect your brand in the global market it is important to seek intellectual property right protection whenever you are exporting your goods and services. The nature of intellectual property rights is that there is a territorial limit.

 

However sometimes it is possible to get protection in many different countries by filing one registration in Kenya. This is however dependent on the type of protection sought and if Kenya is a signatory of some of the IP treaties that cover simultaneous territories.

 

In respect to copyright protection for example if you are a resident in a country which is a party to the Berne Convention for the Protection of Literary and Artistic works or if your country is a member of the World Trade Organization which is bound by the TRIPS agreement and have published your work in one of the member countries then your work is automatically protected in member states.

How to protect your IP in foreign jurisdictions

 

One way of doing this is by seeking protection in the country of export through its intellectual property office. You will be required to pay the fees as prescribed by the national IP office in question.  This system is more desirable if you are exporting your innovations to only a few number of countries. Then you will seek protection in the national office of each country of export.

 

However if you are exporting your goods to a region and these regions have regional IP agreements, then it would be better to get protection via the regional offices rather than the national IP offices. Some examples include the European Patent Office, the African Regional Industrial Property Office ( ARIPO-which is for English speaking African countries), African Intellectual Property Office ( OAPI-for French speaking African countries), Benelux Trademarks Office for Belgium, Netherlands and Luxembourg, Patent Office of the Co-operation Council for the Arab States of the Gulf . Each of these offices specifies what kind of IP right it can grant regionally for example ARIPO offers regional protection for patents, trademarks and industrial designs while the Gulf Patent Office handles only patents.

 

International protection is available whereby you file just one application and your innovation is protected globally by that single filing. It is possible to protect your patent globally under the PCT system and get protection for your patent in more than 100 countries. When you do a national filing through KIPI your patent is only protected in Kenya. However when you do it under PCT you get protection in more countries. The Madrid system applies for international protection of trademarks while the global protection for industrial designs is done through the Hague Agreement.

 

However it is important to note if the country in which you seek to protect your IP right is a signatory to some of the WIPO Treaties allowing for international applications.

 

When you protect your IP globally the benefits include limiting the risk exposure for your innovations due to infringements or counterfeit. It also enables you to build your brand worldwide and gain high repute as IP rights give you an almost monopolistic advantage over your competitors. Marks that are in IP known as “well known marks” are mostly those with global IP protection.

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PERSONALITY RIGHTS

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Many times talented people and public figures find themselves in scandals that can really damage their reputation in the eyes of the public. However a price comes with being a celebrity and that is, part of you is owned by the public.  There is a branch of law that is known as personality rights law and there are several countries with a specific law on personality rights.  In Kenya there is not yet a specific law on personality rights but it is possible to protect your personality through several other laws. Businesses also have personality rights to some extent and should also aim at protecting them.

 

One of the personality rights that someone has is protection from unauthorized appropriation of their personality. Unfortunately many people appropriate other people’s personalities in a damaging way. In Kenya it is a crime to pretend to be another person for gain. There is also a civil law aspect. For example many times businesses may use unauthorized endorsement of a product by a celebrity so as to boost sales. Other times businesses may misrepresent their client lists so as to boost their profile. All this is part of the breach of personality rights that every business and individual is entitled to. While there is no specific personality rights law, one can claim damages under civil law. The damages depend on the repute of that person. In Canada’s law, personality rights can be breached by unlawful use of one’s photograph or voice especially in advertisements.

 

Part 2 of the Constitution lists some of what can be considered to be personality rights. These include the right to human dignity and the right of privacy.

 

Defamation laws also protect one’s personality and are available to every person. Therefore if someone else unlawfully and illegally attacks your personality then you can recover damages under civil law. You can recover damages from anyone that attacks your profession, trade or calling. If somebody falsely attacks your professional ability and that causes injury then you can recover damages. The thing is that the attack must be false and must also cause damage. Women can recover damages when other people make false allegations about their chastity. Many times women have been slandered even on social media. A few weeks ago I was reading of a story of a young lady of about 18 who went through a lot of cyber bullying when a blogger alleged that she was loose. If the allegations are false, this lady can recover a lot of damages from the blogger as Section 4 of the Defamation Act specifically provides for a recourse when a woman is slandered falsely.

 

There are many ways for a business to protect its personality and it all comes down to strategy. A business can decide to carry out strategic litigation against businesses or people who infringe on their personality rights, for example filing infringement suits. I know a company that seems to have taken this strategy where it has filed several law suits worldwide against other businesses that infringe on their name. The message that is being sent out, is do not tamper with our personality rights. Some celebrities have also taken this approach of filing law suits against people who tamper with their personality rights sending out a very strong message that do not mess with their name or reputation. It seems that this is the only way in Kenya one can protect their personality and it is more of a reactive measure than a preventive one. You cannot stop people from defaming you but you can sure make them pay for that and send out a strong message in the public that nobody tampers with your rights and gets away with it.

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THE CONSTITUTIONAL QUESTION OF LAND HOLDING BY NON-CITIZENS IN KENYA

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  • Factual Background

The non-citizens held freehold interests in land in Kenya before the passage of the Constitution of Kenya 2010. The Constitution 2010 decreed that upon promulgation, the freehold interests held by non-citizens would revert to the state upon which the State would instantly issue 99 year leases at a peppercorn rent.

However despite the conversion in title the State has, almost two years later, failed to issue any leasehold titles to non-citizens as contemplated by the Constitution. The state has largely been silent on this issue notwithstanding the fact that the freehold titles stood revoked upon the date of promulgation.

To aggravate the situation, the Land Bills are silent on the matter. The result is that legitimate property owners are left without any legal protection of their property.

 

  • Emerging Issues Under Article 65
  • Are non-citizen freehold proprietors in Kenya entitled to 99 year leasehold grants upon promulgation?

 

  • Is the failure to issue the leasehold grant more than two years later unconstitutional?

 

 

  • Does the action breach any provision of the Bill of Rights?

 

  • What remedies do non-citizens have to protect their property?

 

 

  • Brief Answers

Are non-citizen freehold proprietors in Kenya entitled to 99 year leasehold grants upon promulgation?

Yes, under Section 65 of the Constitution, non-citizens are entitled to hold property albeit a 99 year old leasehold. It is an incorrect notion for anyone to assume that non-citizens are not allowed to hold any land in Kenya.

 

Is the failure to issue the leasehold grant more than two years later unconstitutional?

 

Yes. Paragraph 8 of the Sixth Schedule obliged the state to grant 99 year leases in place of freeholds held by non-citizens upon promulgation. The omission breaches this express constitutional decree.

 

Does the action breach any provision of the Bill of Rights?

 

Yes. The long running omission is in breach of the Bill of Rights and property rights under Articles 19, 20, 27(4) 40 and 47 of the Constitution.

 

What remedies do non-citizens have to protect their property?

 

The affected property owners can move under Article 23 of the Constitution and seek the remedies for breach of fundamental freedoms; injunctions, judicial review orders (mandamus, certiorari and prohibition)

 

  • Legal Position

Article 65 of the Constitution allows non-citizens to hold land in Kenya, limited to 99 year leases. Article 65(2), as read with Paragraph 8 of the Sixth Schedule gives the provision retrospective effect so that all existing freeholds automatically reverted to the State in consideration for the immediate grant of a 99 year lease at a peppercorn (nominal) rent. The conversion would have automatic effect on the effective date.

The Constitution of Kenya 2010 was promulgated and became effective on 27th August 2010. The conversion of the Petitioners freehold interest to a leasehold interest therefore automatically took place on 27th August 2010.

However, the State through the Ministry of Lands has declined, neglected or failed to grant non-citizens a 99 year lease as assured by the Constitution. The omissions extend close to two years beyond the effective date and continue.

Additionally the State has breached the express terms of Article 65 as read with Paragraph 8 of the Sixth Schedule. The omission defies the Constitutional order expressed in Paragraph 8 of the Sixth Schedule that required the State to instantly substitute non-citizen’s freehold grants for 99 year leasehold grants for a peppercorn rent.

The State’s inaction is therefore openly unconstitutional. Every person is obliged under Article 3(1) to respect, uphold and defend the Constitution. As a matter of fact, Article 1(4) invalidates any acts or omissions which contravene the Constitution. The States omission amounts to constitutional contempt.

Moreover Article 68(c) (ii) obliges Parliament to make further provisions on how land can be converted from one category to another. The Land Bills omit to provide for how freehold interests held by non-citizens will be converted to leaseholds.

The result of these omissions is that non-citizens’ rights are left in a vacuum without any legal protection.  This is in breach of Article 19, 20, 40 and 47 of the Constitution.

The transgression does not stop with the Constitution of Kenya. Indeed Articles 2(5) and (6) of the Constitution of Kenya warrant the application of customary international law as well as treaties ratified by Kenya. The State is party to a number of international human rights conventions.

 

Relevant International Human Rights Law Provisions on the Right to Property

 

In this regard the failure, refusal or omission to issue the 99 year leases is in breach of Article 17 of the  Universal Declaration of Human Rights (1948) to which Kenya is a party. The article declares that “Everyone has the right to own property alone as well as in association with others. No one shall be arbitrarily deprived of his property.” (Emphasis ours).

 

The inaction is an arbitrary deprivation of property since the State has failed or refused to grant the 99 year leases with the result that legitimate property owners are not certain what kind of interest, if any, they hold over their property.

 

Likewise the International Convention on the Protection of the Rights of All Migrant Workers and Members of Their Families (1990) has the most detailed property clause, including conditions for permissible State interference:

No migrant worker or member of his or her family shall be arbitrarily deprived of property, whether owned individually or in association with others. Where, under the legislation in force in the State of employment, the assets of a migrant worker or a member of his or her family are expropriated in whole or in part, the person concerned shall have the right to fair and adequate compensation. (Art. 15)

Equally Article 16 of the International Covenant on Civil and Political Rights (1966) affords all, without any discrimination, the equal protection of the law. In this respect, the law prohibits any discrimination and guarantees to all persons equal and effective protection against discrimination on any ground such as race, colour, sex, language, religion, political or other opinion, national or social origin, property, birth or other status. (Emphasis ours).

The same is reiterated in Article 2 of the International Covenant on Economic, Social and Cultural Rights (1976).

The First Protocol to the Convention for the Protection of Human Rights and Fundamental Freedoms, commonly referred to as the European Convention on Human Rights (ECHR) at Article 1 recognizes that:

Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law.

The American Convention on Human Rights (ACHR) upholds the right of everyone to the “use and enjoyment of his property” and lays down the possibility of subordinating this right to the interest of society, while at the same time specifying the restrictions on State actions (Article 21).

At the same time Article 14 of the African Charter on Human and Peoples’ Rights (1981) guarantees the right to property and outlines the public need and general interest of the community as legitimate grounds for limiting the right. The encroachment on the right must also be in “accordance with the provisions of appropriate laws” (emphasis ours).

Customary International Law

It is a well recognized rule in international law that the property of non-citizens cannot be taken, whether for public purposes or not, without adequate compensation (Iran-United States Claims Tribunal). The state omissions amount to expropriation of foreigner’s property without compensation against the rules of customary international law. Article 2(5) of the Constitution of Kenya incorporates general rules of international law as part of the laws of Kenya.

It is well settled that expropriation occurs when the “effect of the measures taken by the state deprive the owner of the title, possession or access to the benefit and economic use of his property’’ (Santa Elena v Costa Rica (1926) Series A, No. 7,PCIJ; see also Papamichalopoulos v. Greece (1993) Series A, No. 260, ECHR at page 15).

Remedies

The Constitution at Articles 22 and 23 provide the remedies for the breach of fundamental rights, in this case, the Petitioner’s property rights under Article 19, 20, 40, 47 as read together with Article 65 and Paragraph 8 of the Sixth Schedule.

 

The High Court is empowered to issue orders including; a declaration of rights, an injunction, an order for compensation and an order for judicial review.

 

  1. Constitutional Petition

 

The affected landowners ought to speedily file a constitutional petition for determination of the constitutional questions set at Section (a) above. The grounds will be that the omission to grant the leasehold violates the Constitution as discussed. The filing of the petition should have a suspensive effect on the enactment process of the land bills, any transactions on the suit lands and the grant of title on the land to any third parties.

 

  1. Lobbying

With appropriate instructions, we are able to lobby the relevant authorities to not only fast track the process of issuing the grants but also consider the non-citizens’ interest in the Draft Land Bills. If all else fails then on behalf of the interested parties we would be able to get a court order stopping any process of legislating the Land laws until the non-citizens issues has been adequately catered for. We must say at this point that an extension has been granted for 60 days before the Bill can become law.

 

 

 

  1. Preservation of the Freehold Titles

Though the titles have in theory converted, non-citizens acting within the existing gap could transfer the freehold interests to trusts for the benefit of or companies incorporated with citizens.

The move however has its inherent legal as well as fiscal risks. In any case the conversion has already occurred and the courts might be unwilling to adjudicate subsequent disputes along this line in favour of the property owners.

 

 

CONCLUSION

 

The most preferred remedy at the moment is lobbying the Government to consider your rights and to include the issue in the Land Bill. If after lobbying the results are still not favourable then we can get relevant court orders stopping the entire process and forcing the authorities to consider the non-citizen issue.

 

Suffice it to say, from the definition of non-citizen, many state corporations, listed companies and trusts are affected. We do not expect the Government to have a discriminatory application of the Constitution. We look forward to hearing from you and do not hesitate to contact us should you require any further clarifications on the way forward.

Section 8 of the Sixth Schedule

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MANAGING THE CONFLICT BETWEEN SHAREHOLDERS AND DIRECTORS

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The conflict between shareholders and directors is a major issue when it comes to Corporate Governance.  The major role of the directors is to increase the value of the company for the benefit of the shareholders. This requires that any policies or decisions made by the directors must always be done with the aim of increasing the value of the company. The company is owned by the shareholders….the ownership of the company lies with them. However the control of the company lies with the directors. The possibility of conflict comes up due to conflicting interests between those who own the company and those who control it.

 

Areas of conflict

There are many areas in which the conflict arises. A director with little or no ownership in the company may not feel motivated to take the best decisions for the company. Sometimes a high risk needs to be taken or a huge sacrifice done for the benefit of the company. A director with no ownership will not feel motivated to undertake such risk.

 

One of the interests of a director may be to increase control for himself, even if this means that the company value will go down in the long run. Some of the ways that directors would seek to increase control is pass resolutions extending their term notwithstanding the fact that their performance is below par.

 

Another area of conflict is the possible need for directors to appear in good light before the shareholders. Some of the ways this may happen is by misrepresenting performance by doctoring audit reports and financial statements to make the company appear as if it has been making a profit whereas this may not necessarily be the case.

 

Directors control vital information of the company…they have the expertise and skill to run the company while the shareholders are seldom skilled. How company information is managed may be a source of conflict.

 

There are other areas of more direct conflicts between shareholders and directors…for example when contracting with third parties, directors may award contracts to parties affiliated with them and who are not necessarily the best placed.

 

Directors may also award themselves high packages like remunerations and allowances to the detriment of the company.

 

Shareholders may conflict with directors when they impose strict and stringent rules on dsirectors in regards to performance and benefits like remuneration and others.

 

Managing the conflicts

This article is geared more for smaller unlisted companies that have a corporate structure separating shareholders and directors. Larger companies especially listed companies have sound corporate governance policies that manage the conflict adequately. Besides for listed companies, the regulator has regulations on corporate governance that must be adhered to. On the flip side is the typical Kenyan company. The shareholders in the typical Kenyan company are the same ones who form the board of directors. This is therefore for smaller companies whose ownership and control functions are separated.

 

One of the ways of managing this conflict is to come up with performance contracts based on expected return. The performance contract should be realistic and should contain penalties for non performance for example salary cuts.

 

Another way of managing this conflict is by drawing up sound engagement contracts for the directors. The contract should contain the scope of duties and responsibilities and also set out the expectation of the shareholders ‘clearly. The policies of the company should be highlighted to avoid ambiguity. It must be made clear that the directors owe a fiduciary duty to the shareholders and where this duty is breached then some penalties apply. It should also be made clear that the director must disclose all pertinent information regarding conflict of interest. There should be penalty clauses in the engagement contract if the director fails to meet his obligations.

 

Another way of managing the conflict is by ensuring that the board of directors includes a shareholder with skills and expertise in the affairs of the company. This shareholder will serve as the shareholders “watchdog” and will safeguard the shareholders’ interests.

 

The best way of managing the conflict is by employing motivation mechanisms for the directors.  One way would be by awarding the directors who perform…maybe by salary increment, extension of terms and other perks.

A method of employing motivation tools for directors’ that has worked is by giving deserving directors some ownership in the company. A director who has a stake in the company will ensure that every decision made is in the company’s best interests.

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LEGAL ISSUES OF A SOCIAL ENTERPRISE

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The most common inquiry that I am getting of late is from social entrepreneurs that is, people who have a business idea that will assist society. Most of them have an idea but do not know how to develop this idea or concept into a business. I have also seen that most of the people who inquire about social enterprise are professionals who would like to turn their professional skills into a business model that will help society. Some of the innovators I have spoken to are coming up with systems and apps that will benefit society in some way.  A social entrepreneur therefore identifies a need in society and aims to meet that need. It is a very risky form of enterprise and is not for the fainthearted. In fact from my own observation I have seen that most of the social entrepreneurs have a passion for the area of business they want to venture into due to personal experience. When I talk to most of them, I discover that for them it is not even about making money, but fulfilling a need in society. I therefore concluded that to be a social entrepreneur you have to have the passion for it. There are many stories of people who quit their corporate jobs to go into social enterprise and for them the go factor is that it is a more rewarding venture in terms of job satisfaction.

 

A social enterprise may be profit making or be a non-profit making venture.  In Kenya there are a number of multibillion organizations that would qualify to be social enterprises.

 

Whether a social enterprise is formed with the aim of making money or not, it faces the same issues that all other businesses face the main one being finances. Some of the social entrepreneurs are able to finance their enterprise from their own savings but financing remains the biggest challenge for a social enterprise in Kenya. Financing is very difficult as not many lenders will lend to a social enterprise especially if it is formed with a charitable purpose. Not many equity investors will also venture into social enterprise as for an equity investor, return is what drives him to invest.  The financing options for a social enterprise are therefore very limited. I have however considered the legal issues faced by a social enterprise in as much as there are many other issues such as finances.

 

Legal Issues

The main legal issue for a social enterprise is what form of business association to use in the venture. The main forms are a sole proprietorship, partnership, company, NGO and trust. I usually recommend formation of either a company limited by guarantee or a trust. The reason for this is the corporate identity that the social enterprise gets. Furthermore, most donors would be unwilling to work with a sole proprietor due to governance issues. Donors are very keen on corporate governance. The understanding social enterprises should have is that one of the main sources of financing from them is donor funds. Therefore to meet the need of the donors on funding they can use the two forms of association. A company for example, would allow the donors to participate in board affairs and sometimes even co-own the enterprise.

 

A social enterprise faces another issue on regulatory approval. There are some ventures you cannot get in without government approval, for example you cannot deal with child matters without informing the Government. You cannot deal with conservation without getting approval from the regulator. Before beginning a social enterprise ensure that you have consulted a lawyer who will take you through whatever approvals are required for your venture.

 

In my view social enterprise is the next big thing as many organizations are increasingly looking to partner with social entrepreneurs.

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LEGAL FRAMEWORK ON TECHNOLOGY

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Technology plays a very important role in Kenya’s economic development and most of the companies that have high returns are in the telecoms or ICT sector. This trend is the same globally…a quick scan through the Forbes list of the world’s richest shows that most of them are in the ICT sector. This sector has given rise to a new crop of CEOs and billionaires…the young billionaires who are not yet in their thirties. This trend is also catching up in Kenya where profitability has ceased to be about capital but has become more tied to knowledge and innovation.  As an intellectual property practitioner, most of the inquiries I get are from young innovators in the ICT sector and a few in the telecoms industry especially the app developers. The most common inquiry from them is how to protect their works. It is quite challenging to protect ICT in Kenya through patents and this forms the subject of this article.

 

The current laws governing ICT are the Kenya Communications Act, Science and Technology Act and to some extent the Industrial Property Act. The Kenya Communications Act does not address issues of protection of ICT innovations but mostly addresses issues of licensing and regulation. This therefore leaves the Industrial Property Act and the Science and Technology Acts as the statues that would govern the rights of an ICT innovator. What ICT innovators should know is that the 2001 law on Industrial Property does not exclude software from patenting however what is patentable is the method, any device that will support the software and the process.  Software that falls under the category of business method do not qualify for patent protection. What this therefore means for the ICT innovator is that only some software can be patented in Kenya. If the software’s applicability is in improving the way business is done for example an MIS system, it cannot be patented. Other than this criteria for protection, the innovator must ensure that his work meets the other requirements like novelty.  The ICT innovations that are most likely to be granted a patent are hardware ICT inventions. Such hardware innovations controlled by software are patentable in Kenya. What this means is that ICT innovators should consider doing more of hardware innovations as opposed to software which are harder to protect under patent laws.

 

This is not to say that software cannot be protected under Kenyan laws at all. There are still other types of intellectual property like utility models and copyrights that can be granted to ICT innovators. However these may not be as effective as patents in protecting the innovation. There are some countries that grant software patents and therefore an innovator can pursue protection of their software in such a jurisdiction. This would only make sense if such innovation is going to be commercially exploited in the foreign country otherwise it would be an expensive venture.

 

My advice for ICT innovators would therefore be to consider doing more of hardware innovations so as to meet eligibility under Kenyan patent laws. They could also consider protecting their software innovation in other countries like the USA if their end product will be commercially exploited in such countries. Today there are some venture capitalists who scout for innovations to finance and commercially exploit in another jurisdiction. An innovator such as this one can get foreign protection for his software innovation. If all else fails, then ICT innovators can consider filing for utility model and copyrights. This will give their innovations a measure of protection.

 

There have been calls for the law to be amended to suit the needs of ICT innovators. There is currently not enough case law in Kenya on software innovations.

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LEGAL DUE DILIGENCE IN DIVERSIFICATION

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In today’s market no matter which field you are in, it’s becoming increasingly important to diversify. As more suppliers enter the market, competition on the supply becomes higher forcing suppliers into diversification. The life cycle of businesses makes diversification inevitable. For the market leaders the need to diversify is felt when the company attains its point of maximum growth and no more profitability can be attained. For smaller and upcoming companies the need to diversify is felt when there is very high competition in a particular market, forcing it to diversify.

 

There are several reasons businesses diversify including increasingly profitability, increasing competitiveness and value, survival and expansion. Sometimes the reason for diversification could be for survival as demand for the core business is no longer there. Many businesses have been able to re-invent themselves over the years as consumer needs change by diversifying.

 

Whatever the reason for diversifying it is almost inevitable that your business will have to diversify some day if you hope to survive or expand. It’s however prudent to time your diversification well as the best time to diversify is when your core business has stabilised and also when there is good opportunity for diversification. There are many diversification strategies ranging from the very simple to very complex strategies.  The most simple diversification strategy is by natural progression and that is by offering services/ products that are directly related to your core business. In my field, which is legal professional services, many real estate lawyers are now diversifying into offering real estate services as well. Many real estate lawyers are in the business of estate agency, property management and other real estate services. The lawyers who are much diversified have gone into real estate developments and left legal practice altogether. A more complex way of diversifying is by taking advantage of a strong brand to enter into a new market. There are many opportunities created by new laws and other changes in certain markets making it possible for a strong brand to enter into that market and survive easily. A good example of this kind of diversification was when many leading banking brands in Kenya diversified into financial advisory services many years ago.

 

Well diversification sounds simple but before deciding to diversify a number of factors must be taken into account. A market research must be done on the proposed area of diversification. Diversification should be treated like a new business line altogether and the same steps that need to be taken when starting a new business should be taken when diversifying. Among some of the important things to do is drawing up a strategic plan which lay out the goals of diversification and drawing up a diversification plan. It is important to know what capital outlay is required for diversification for example will you need a new premises or new equipment? All this must be considered before rushing to diversify. The projected cash flows must also be estimated to ascertain at which point the diversified line will start making money for you. In fact during planning stage, you may find that it may not be worthwhile going into diversification or may decide to postpone the decision to diversify.

 

A legal due diligence is very important on the proposed area of diversification as some areas of diversification would be largely dependent on the results of the legal due diligence. The first thing is to find out what laws govern the proposed area of diversification and also what proposed laws are in the line. For example a firm wishing to diversify into public transport must be aware of the new traffic laws and assess its capabilities to meet all the stringent requirements as these would have a bearing on diversification. In some lines of business, the regulation in your core business forbids you from entering the area of proposed diversification. Professional services are heavily regulated and you may find that the regulations forbid you from doing certain businesses. Therefore in this sense the regulation makes it impossible for you to diversify.

 

A business planning to diversify must also ensure that the necessary regulatory approvals are gotten to avoid falling short of the law. In most sectors it would be illegal to carry out business in that sector without getting a nod from the regulator.  For example a consultancy wishing to get into human resources consultancy should be aware of the new human resources law that requires all HR practitioners to be registered.  It is also prudent to get whatever licenses are required to enable you diversify.

 

A business wishing to diversify should also take steps to acquire statutes in the relevant field of operation and also get sample contracts and documentation from your lawyer in the relevant field.

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LEGAL CHALLENGES WITH SOCIAL MEDIA

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I was on facebook recently when I saw an advertisement that caught my eye. It was an advertisement for a product that promised users weight loss in seven days and apparently had no side effects. The owner attested to this by posting her before and after pictures. To access the product all you had to do is inbox the owner and you would have the product delivered to you.

 

This had me thinking that a lot of unregulated trade goes on through social media pages. Some of the trading could have an adverse effect on the consumers as in the case above, the pills were imported from the USA and there was no way the consumer could attest to the safety of this product. A lot of illegal trading also goes on through the social media with some of the facegroup pages having illegal objects. Sometime last year there was a lot of public outcry about a facebook page formed by campus students, “campus divas” and that was used to promote prostitution. The government loses a lot of revenue from unregulated trading that goes on through social media.

 

The challenges faced by increased use of social media are common globally and are not common only to Kenya. The question has been whether to regulate social media or not. The Constitution provides for freedom of information and freedom of speech. This means the government would be going overboard in totally outlawing any forms of social media for that would be curtailing the bill of rights. In some jurisdictions however, social media has been totally outlawed. The issue for consideration is whether to regulate some aspects of social media. There is already some form of regulation through the CCK (Communication Commission of Kenya) and there is the Kenya Information Act that provides a limited regulation of social media. It is for example an offence to use social media to promote illegal activities. Already a number of persons have been charged in Kenyan courts for misusing social media. In the USA there is a more detailed regulation of social media and perhaps it’s something our legislators can look into adopting.

 

However when it comes to your business, HR policy, computer policy and employment laws can provide some sort of social media regulation on usage of social media for your staff. For example you can specifically contract that staff are not allowed to make any posts that would breach on the confidentiality and image of your firm. It is however difficult to totally control usage of social media due to the constitutional provisions. For example if you sacked somebody on the grounds that they belonged to a certain social media group and the person can show that the group has no direct impact on your business, then it would expose you to a suit on wrongful termination.

Most businesses do not have a social media policy and it is advisable to have a social media policy to ensure your staff uses social media in a way that enhances your business. It is also good to train your staff on how best to use social media in the best interests of your business. There is a US company that had to sack a staff member after her post suggested she stood a risk of contracting HIV as she was coming to Africa. The company had to issue an apology and also take disciplinary action against the employee.

 

When drawing up your social media policy, consider the needs of your business vis a vis existing laws. A too stringent social media policy is unconstitutional and a too lax one would not serve the intended purpose.

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