Ask a lawyer:
Can one company own the software and another operate it? Both companies owned by one individual. Can suing the one that operates the software affect the one that owns the software?

Table of Contents

1. Introduction

2. Ownership and Operation of Software

3. Separate Legal Entities

4. Piercing the Corporate Veil

5. Conclusion

Introduction

This question delves into the intricate relationship between ownership and operation of software within the context of Kenyan law, particularly focusing on the potential legal ramifications when separate companies, both owned by the same individual, are involved. This analysis will explore the legal principles governing ownership and operation of software, the concept of separate legal entities, and the doctrine of piercing the corporate veil.

Ownership and Operation of Software

The ownership and operation of software are distinct concepts under Kenyan law. Ownership refers to the legal right to possess, use, and control the software. This right is typically established through intellectual property rights, such as copyright or patents. Operation, on the other hand, refers to the actual use and implementation of the software.

• Copyright Act, 2001: This Act governs the protection of literary, dramatic, musical, and artistic works, including computer programs. Section 2 defines "computer program" as a set of instructions expressed in a form suitable for processing by a computer. Section 12 grants the copyright owner exclusive rights to reproduce, adapt, publish, perform, and broadcast the work.

• Patents Act, 2006: This Act provides for the protection of inventions, including software inventions. Section 2 defines "invention" as any new product or process involving an inventive step and capable of industrial application. Section 10 grants the patent owner exclusive rights to exploit the invention, including the right to make, use, and sell the invention.

Separate Legal Entities

In Kenya, companies are recognized as separate legal entities distinct from their owners. This principle is enshrined in the Companies Act, 2015.

• Companies Act, 2015: Section 14(1) states that "a company incorporated under this Act shall be a body corporate having perpetual succession and a common seal, and shall have the power to sue and be sued in its corporate name." This means that a company is legally distinct from its shareholders and directors, and it can enter into contracts, own property, and incur liabilities in its own right.

Piercing the Corporate Veil

The doctrine of piercing the corporate veil allows courts to disregard the separate legal entity status of a company and hold its shareholders or directors personally liable for the company's debts or obligations. This doctrine is applied in exceptional circumstances where the corporate veil is used to perpetrate fraud, injustice, or to evade legal obligations.

• The Law of Torts in Kenya by Githendu K. Murage: This legal text explains that the doctrine of piercing the corporate veil is a discretionary remedy available to courts in limited circumstances. The court will consider factors such as the degree of control exercised by the shareholder over the company, the extent to which the company's assets are used for the shareholder's personal benefit, and whether the company was formed for the purpose of defrauding creditors.

Conclusion

In the scenario presented, where one individual owns two companies, one owning the software and the other operating it, the legal implications depend on the specific circumstances. While the companies are separate legal entities, the doctrine of piercing the corporate veil could be invoked if the individual uses the corporate structure to perpetrate fraud or evade legal obligations.

Suing the company operating the software may not directly affect the company owning the software unless the court finds grounds to pierce the corporate veil. However, the outcome of the lawsuit could have indirect consequences for the software-owning company, such as reputational damage or potential loss of customers.

It is crucial to consult with a legal professional to assess the specific legal risks and implications in such a situation.