What type of company should you register in Kenya?

What type of company should you register in Kenya?

There are different type of business in Kenya registered under the company act and the business registration act. If you plan to register a company in Kenya, the type of entity you select will impact your future business. It is therefore critical to start on the right track by getting the best advice. ocl business associates will advise you the best form of business to register in Kenya

If the type of entity selected is inadequate, it will automatically generate waste of time, additional costs and frustration at some point of your development. This is why I strongly insist on understanding what type of entity suits best your project. It is important to ensure you start your business venture in Kenya with accurate information pertaining to the entity to avoid confusion.

Below is a list of the different types of entities available when you want to register a company in Kenya. Indulge us as we elaborate more on each type of entity. This is meant to provide valuable insights to foreign investors and decision-makers before they register a company in Kenya.

 The main business entities in Kenya are:

Registered Companies (private and public)

Branch office of a foreign registered company

Company Limited by guarantee

Partnership

Limited Liability Partnership

Sole proprietorships 

Business Name or Sole Proprietorship

A Business Name is the simplest entity where one is equal to the business.  A Business Name is usually the investor’s name. Then, it is impossible to separate the person (who is the owner) from the business (which is the entity).  Therefore, the Business Name is not considered a separate legal entity. The liability of the owner is not separate from his/her business. Generally, the registration of a Business Name is also quite straight-forward. And because the entity is a sole proprietorship, maintenance of the business is also made easier. For example, accounting can be done individually on Excel and you don’t need to perform an annual audit when you file your annual tax returns. Obviously the decision-making process is easier too, as it solely relies on one person

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Private Limited by Shares

In a company limited by shares, the liability of its directors and/or shareholders is limited by the Memorandum of Association to the amount of shares in possession of the shareholder(s).

  . The Private Limited by Shares is basically the most common type of entity selected by foreign investors to register a company in Kenya.

 It can have multiple owners and it is therefore considered as a separate legal entity from the owners of the company. Therefore, when we say the company is considered a separate legal entity.

 It basically means that the company is subject to various obligations. The obligations include, but are not limited to: filing of the annual returns at the registrar of companies, independent audit of the accounts, and corporate tax of 30% on profits.

 Companies Act (2015) requires at least one shareholder to incorporate a private company limited by shares. The maximum is kept at 50 members (of course excluding employees).

 A Shareholder owns a company through the purchase or acquisition of shares; a Director is appointed by those shareholders to manage the operational activities of a company.

However, a shareholder can also be a director. This is very common in private companies. In many cases, just one person will assume the role of sole shareholder and sole director.

Shareholders own shares in a company. The ‘nominal’ value of their shares is the amount they are liable to pay toward business debts. Shareholders receive a portion of company profits in relation to the number and value of their shares.

 They are not responsible for the day-to-day activities of the business, unless they are also directors. The shareholders, being the company owners, will only make decisions about significant matters such as changing the name of the business, appointing or removing directors, changing directors’ powers and altering the articles of association (and any other roles prescribed to them in the law and their Company Constitutions).

Branch – Foreign Company

An investor could be interested in setting up a new location, division, department under the original company’s name and is still part of that legal entity to conduct business on behalf of the mother company.

In this case, the mother company is not excluded from liabilities incurred at the Branch level.

 A branch does not require to have a local board. The branch registration process and winding-up processes are less complex. This is why this type of entity is ideal for short-term activities.

Unlike the Private limited by shares, a branch is exempted from filing returns to the registrar of companies.

This is because the mother company files on behalf of the branch. The lower side of this is that taxation is much higher for the Branch, it rises up-to 37.5% on profit. The maintenance fee that is usually sent directly to the mother company is also subject to taxation.
The requirements for registering a branch in Kenya are as follows

Certified copies of the parent Company’s Certificate of Incorporation

Certified copies of the Charter, Statutes or Memorandum and Articles of Association of the parent Company

 List of the Directors of the Parent Company giving the following particulars: Full Names, Postal address, Nationality and Business Occupation

Name(s) and Postal Address of one or more persons resident in Kenya authorized to accept service on behalf of the company.

 Full address of the Registered or Principal office of the parent company.

Full address of the place of Business in Kenya.
If the process is successful you will be issued with a Compliance Certificate.

Limited Liability Partnership

The LLP formation is popular when a professional partnership would like the benefit of protected liability.

 This is particularly suited to accountants, solicitors, architects, consultants, surveyors and other fields of expertise where a partnership can be preferred to a limited company.

 Within an LLP the earnings of the members is normally seen as personal income. Being a separate legal entity to the members, the LLP can buy, rent, lease, own property, employ staff, enter into contracts, and be held accountable if necessary.

 Public disclosure is the main disadvantage of an LLP. The tax rules for an LLP are the same as any ordinary partnership.

The members are deemed self-employed. Each partner will report their share of the profit on their personal tax return. The individual partners will pay income tax on their profit share.

The LLP structure provides a potentially useful alternative business vehicle to the private company. It has the benefit, at least at present, of being less regulated than a private company.

 From a tax perspective, it may prove more effective than a company because currently partnership income is taxed (at individual level) in the hands of the individual partners and not at the firm level, whereas companies are taxed at the entity level and any dividends also taxed in the hands of shareholders.

 It remains to be seen whether the Government would propose taxing the LLP at firm level given its separate legal personality

Provided that Kenyan income tax laws are not amended to impose a tax on the LLP at firm level, then the LLP will also provide a superior alternative business vehicle to a general partnership.

This is because the LLP will provide the same “pass through” taxation benefit as a general partnership, but in addition, retain Limited Liability to the partners akin to that offered by a Company to its shareholders.

Limited by Guarantee

Lastly, a company limited by Guarantee is often referred to as a ‘not for profit’ or ‘Charitable company’. It refers to the fact the parties involved do not remove the profit from the company as shareholders can in a company limited by shares. Any profit made by the company is re-used for the good of the business.

A Company Limited by Guarantee has members who act as guarantors. This means that it allows the entity to have multi-membership. A company limited by Guarantee has a very similar structure to a company limited by shares. Indeed, they have directors appointed to manage the day to day running of the company. 

Interestingly enough, according to the Registrar of Companies, the members and directors are required to undergo vetting by the National Intelligence Service (NIS). When the vetting is complete, then we can proceed with its registration.

A company limited by guarantee (CLG) is an alternative type of corporation used primarily for non-profit organizations that require legal personality.

 A company limited by guarantee requires all directors and members to undergo vetting before the company is registered.

A person wishing to incorporate a company should lodge with the Registrar the following documents:

Application and reservation of name. The name search and reservation process can be done on the E-Citizen platform.

A duly filled Form CR 1 – which is an application form used for the registration of either a Limited company, Unlimited company or a company limited by guarantee..

Model memorandum for a company limited by guarantee (Form CR3)

Articles of Association are only attached if the company chooses to present its own articles instead of adopting those provided in the Regulations.

A copy of national I.D. card, KRA PIN certificate and recent colored passport photograph of each director and the company secretary (if any).

Notification of directors’ residential address (Form CR8)

Copy of I.D card of person lodging documents.

Registration fees.

Contact ocl business associates for company registration in Kenya