Due Diligence Checklist

A Due Diligence Checklist in Kenya is a structured document used by investors, acquirers, lenders, and their legal and financial advisers to systematically investigate and verify information about a target company or asset before completing a transaction. The Due Diligence Checklist Kenya is anchored in the disclosure and governance obligations imposed by the Companies Act No. 17 of 2015, which requires Kenyan companies to maintain accurate registers of members, directors, charges, and beneficial owners.

Due diligence in Kenya typically covers multiple workstreams: legal due diligence (corporate structure, contracts, litigation, intellectual property, regulatory licences), financial due diligence (historical financial statements audited under the International Financial Reporting Standards as adopted by the Institute of Certified Public Accountants of Kenya (ICPAK)), tax due diligence (compliance with the Income Tax Act Cap. 470, the Value Added Tax Act No. 35 of 2013, the Tax Procedures Act No. 29 of 2015, and the Transfer Pricing Rules 2006 issued by the Kenya Revenue Authority), employment due diligence (compliance with the Employment Act No. 11 of 2007, the Work Injury Benefits Act No. 13 of 2007, NSSF Act No. 45 of 2013, and NHIF Act Cap. 255), and environmental due diligence (compliance with the Environmental Management and Co-ordination Act No. 8 of 1999, NEMA guidelines, and any Environmental Impact Assessment certificates issued by the National Environment Management Authority).

The Capital Markets Act Cap. 485A and the Capital Markets Authority (CMA) regulations impose additional due diligence obligations on transactions involving listed companies or the issuance of securities to the public. The Investment Promotion Act No. 6 of 2004 administered by the Kenya Investment Authority (KenInvest) may apply to foreign investors undertaking due diligence on Kenyan target companies.

For regulated industries, sector-specific due diligence is critical. Banking sector targets require a review of Central Bank of Kenya (CBK) licences and prudential returns under the Banking Act Cap. 488. Telecom sector targets require review of Communications Authority of Kenya licences under the Kenya Information and Communications Act Cap. 411A. Mining sector targets require verification of prospecting rights and mining licences under the Mining Act No. 12 of 2016. In each case, regulatory approval may be required before the transaction closes.

Beneficial ownership due diligence has become increasingly important following the enactment of the Statute Law (Miscellaneous Amendments) Act 2019, which amended the Companies Act No. 17 of 2015 to require all Kenyan companies to maintain a register of beneficial owners and file the same with the Registrar of Companies. Financial intelligence due diligence is also required under the Proceeds of Crime and Anti-Money Laundering Act No. 9 of 2009 (POCAMLA) and the Proceeds of Crime and Anti-Money Laundering Regulations 2013 for transactions in regulated sectors. Under Kenya law, Section 3 of the Companies Act 2015 (No. 17 of 2015) and Section 2 of the Law of Contract Act (Cap 23) govern the core requirements for this type of document.

A Due Diligence Checklist is required in Kenya whenever a party contemplates acquiring shares or assets of a business, investing equity capital in a company, providing debt financing secured against company assets or shares, entering a joint venture with a Kenyan entity, or licensing technology or intellectual property to or from a Kenyan company.

Mergers and acquisitions (M&A) transactions require thorough due diligence before signing a share purchase agreement or asset purchase agreement. The Competition Act No. 12 of 2010 requires notification of mergers meeting certain turnover thresholds to the Competition Authority of Kenya (CAK) before implementation. Due diligence helps the acquirer identify regulatory approvals required and assess any Competition Act risk.

Private equity and venture capital investors conducting due diligence before equity investments use the checklist to verify that the target company's corporate records, cap table, and shareholding structure are consistent with representations made by founders. The Capital Markets Authority Act Cap. 485A imposes additional requirements for due diligence conducted in connection with a proposed initial public offering (IPO) or rights issue.

Banks and development finance institutions (DFIs) such as the Kenya Development Bank and Trade and Development Bank require due diligence reports before extending project finance or corporate loans above specified thresholds. Environmental and social due diligence under the IFC Performance Standards is typically required for projects financed by DFIs.

Commercial landlords and tenants may use an abbreviated due diligence checklist before entering a commercial lease of significant property, verifying the landlord's title under the Land Registration Act No. 3 of 2012 and any encumbrances registered at the relevant land registry. Under Kenya law, Section 3 of the Companies Act 2015 (No. 17 of 2015) and Section 2 of the Law of Contract Act (Cap 23) govern the core requirements for this type of document.

Parties in Kenya should prepare a Due Diligence Checklist proactively rather than waiting for a dispute to arise. Courts interpret agreements based on the written terms rather than oral representations. Under the Companies Act No. 17 of 2015, the Registrar of Companies at the Office of the Attorney General maintains the register of Kenyan companies. Section 3 of the Law of Contract Act (Cap. 23) governs contractual obligations. The Competition Authority of Kenya (CAK) enforces the Competition Act No. 12 of 2010. The Kenya Revenue Authority (KRA) administers corporate tax under the Income Tax Act (Cap. 470). The High Court of Kenya has unlimited original jurisdiction under Article 165 of the Constitution of Kenya 2010. Where the transaction involves regulated activities, prior approval from the relevant authority may be required before execution.

A thorough Due Diligence Checklist for Kenya corporate transactions must address the following core areas.

**Corporate and Legal Structure.** Verification of the target's certificate of incorporation under the Companies Act No. 17 of 2015, memorandum and articles of association, current register of members and directors filed with the Registrar of Companies, register of beneficial owners under the Companies (Beneficial Ownership Information) Regulations 2020, and any shareholders' agreements or voting arrangements.

**Regulatory Licences and Permits.** Confirmation that all sector-specific licences are valid, including licences from the Communications Authority, Central Bank of Kenya, Energy and Petroleum Regulatory Authority, Pharmacy and Poisons Board, or any other relevant regulator. County government business permits under the County Governments Act No. 17 of 2012 and NEMA environmental licences under the Environmental Management and Co-ordination Act No. 8 of 1999 must be verified.

**Material Contracts.** Review of all material contracts—customer agreements, supplier agreements, distribution agreements, joint venture agreements, and loan agreements—for change of control provisions, assignment restrictions, and termination rights that may be triggered by the transaction.

**Intellectual Property.** Verification of trade mark registrations under the Trade Marks Act Cap. 506 at the Kenya Industrial Property Institute (KIPI), patent registrations under the Industrial Property Act No. 3 of 2001, copyright ownership under the Copyright Act Cap. 130, and any licensing arrangements.

**Litigation and Disputes.** Review of pending, threatened, or actual litigation, arbitration, or regulatory proceedings before the High Court, Employment and Labour Relations Court, Environment and Land Court, Tax Appeals Tribunal, or Competition Authority of Kenya.

**Employment and Labour.** Verification of compliance with the Employment Act No. 11 of 2007, including employment contracts, staff handbooks, NSSF registration under the NSSF Act No. 45 of 2013, NHIF contributions under NHIF Act Cap. 255, work injury benefits insurance under the Work Injury Benefits Act No. 13 of 2007, and any pending ELRC claims.

**Tax Compliance.** Review of PIN certificates and tax compliance certificates from the Kenya Revenue Authority, income tax returns and assessments under the Income Tax Act Cap. 470, VAT returns and assessments under the Value Added Tax Act No. 35 of 2013, transfer pricing documentation under the Transfer Pricing Rules 2006, and any outstanding tax disputes before the Tax Appeals Tribunal.

**Land and Property.** Search of the relevant land registry under the Land Registration Act No. 3 of 2012 to confirm title, check for encumbrances (charges, cautions, restrictions), and verify any leases or subleases. Where community land is involved, compliance with the Community Land Act No. 27 of 2016 must be verified.

**Financial Information.** Review of audited financial statements for the preceding three to five years, management accounts, budgets and forecasts, details of indebtedness and contingent liabilities, and any off-balance-sheet arrangements.

**Anti-Money Laundering and Sanctions.** Verification of compliance with POCAMLA No. 9 of 2009, Know Your Customer (KYC) records, and screening against sanctions lists maintained by the UN Security Council Consolidated List and equivalent bodies.

Forms-legal.com provides this Due Diligence Checklist to help Kenyan legal and financial professionals conduct thorough, structured investigations before completing corporate transactions. Under Kenya law, Section 3 of the Companies Act 2015 (No. 17 of 2015) and Section 2 of the Law of Contract Act (Cap 23) govern the core requirements for this type of document.