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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?

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Introduction

In Kenya, the legal framework governing companies, intellectual property, and contractual obligations is well-defined. The Companies Act, 2015, the Copyright Act, 2001, and the general principles of contract law provide the necessary guidelines to address the question of whether one company can own software while another operates it, and whether suing the operating company can affect the owning company. This response will delve into these aspects in detail.

Legal Framework
- 1.1 Companies Act, 2015
- 1.2 Copyright Act, 2001
- 1.3 Contract Law
Ownership and Operation of Software
- 2.1 Ownership of Software
- 2.2 Operation of Software
- 2.3 Relationship Between Owning and Operating Companies
Legal Implications of Suing the Operating Company
- 3.1 Piercing the Corporate Veil
- 3.2 Contractual Obligations
- 3.3 Intellectual Property Rights
Conclusion

1. Legal Framework

1.1 Companies Act, 2015

The Companies Act, 2015, is the primary legislation governing the formation, operation, and dissolution of companies in Kenya. It provides for the separate legal personality of companies, meaning that each company is treated as a distinct legal entity, separate from its shareholders and directors.

Section 2: Defines a company as a body corporate.
Section 19: Provides for the separate legal personality of a company.
Section 20: Details the limited liability of shareholders.

1.2 Copyright Act, 2001

The Copyright Act, 2001, governs the protection of intellectual property rights in Kenya, including software.

Section 22: Defines copyright and the works eligible for protection.
Section 23: Provides for the rights of the copyright owner.
Section 35: Details the transfer and licensing of copyright.

1.3 Contract Law

Contract law in Kenya is primarily governed by the Law of Contract Act, Cap 23. It outlines the principles of contract formation, performance, and breach.

Section 2: Defines a contract and the essential elements for its formation.
Section 3: Provides for the enforceability of contracts.
Section 4: Details the remedies for breach of contract.

2. Ownership and Operation of Software

2.1 Ownership of Software

Ownership of software is typically established through the creation, purchase, or licensing of the software. The Copyright Act, 2001, provides that the creator of the software is the initial owner of the copyright, but this ownership can be transferred or licensed to another entity.

Section 23: The copyright owner has the exclusive right to use, distribute, and license the software.
Section 35: Allows for the transfer and licensing of copyright, meaning one company can own the software and license it to another for operation.

2.2 Operation of Software

The operation of software involves the use, management, and maintenance of the software. This can be done by a different company than the one that owns the software, typically through a licensing agreement or operational contract.

Section 35: Licensing agreements can specify the terms under which the operating company can use the software.
Section 4 of the Law of Contract Act: Such agreements must be in writing and signed by both parties to be enforceable.

2.3 Relationship Between Owning and Operating Companies

When both companies are owned by the same individual, they are still treated as separate legal entities under the Companies Act, 2015. This means that each company has its own rights and obligations, and the actions of one company do not automatically affect the other.

Section 19 of the Companies Act: Each company has a separate legal personality.
Section 20 of the Companies Act: Shareholders' liability is limited to their investment in the company.

3. Legal Implications of Suing the Operating Company

3.1 Piercing the Corporate Veil

In certain circumstances, the courts may "pierce the corporate veil" to hold the shareholders or related companies liable for the actions of a company. This is an exception rather than the rule and typically occurs in cases of fraud, improper conduct, or where the company is a mere façade.

Section 20 of the Companies Act: Generally upholds the principle of limited liability.
Case Law: Courts have occasionally pierced the corporate veil in cases of fraud or improper conduct.

3.2 Contractual Obligations

If the operating company is sued for breach of contract or other obligations, the owning company is generally not affected unless there is a specific contractual provision linking the two companies' liabilities.

Section 4 of the Law of Contract Act: Contracts must be clear on the parties' obligations and liabilities.
Section 3 of the Law of Contract Act: Remedies for breach of contract are typically limited to the parties involved in the contract.

3.3 Intellectual Property Rights

Suing the operating company for issues related to the software's use does not typically affect the owning company unless the lawsuit involves the ownership rights or there is a licensing agreement that implicates the owning company.

Section 23 of the Copyright Act: The copyright owner retains the exclusive rights unless transferred or licensed.
Section 35 of the Copyright Act: Licensing agreements can specify the extent of the operating company's rights and obligations.

Conclusion

In summary, under Kenyan law, one company can own software while another operates it, even if both companies are owned by the same individual. The Companies Act, 2015, the Copyright Act, 2001, and the Law of Contract Act, Cap 23, provide the legal framework for such arrangements. Suing the operating company does not automatically affect the owning company due to the principle of separate legal personality, unless specific circumstances such as fraud or improper conduct justify piercing the corporate veil. Contractual provisions and licensing agreements play a crucial role in defining the rights and obligations of each company.