Incorporation of Companies in Kenya

INCORPORATION OF VARIOUS COMPANIES IN KENYA

Companies in Kenya are governed by the Companies Act No. 17 of 2015 (the Companies Act) that provides for the incorporation, registration, operation, management and regulation of companies. Part II of the Companies Act proceeds to provide for 4 types of companies; a limited company, an unlimited company, a private company or a public company (holding company?).

A limited company is one that is limited by either shares or by guarantee. A company is said to be limited by shares if the liability of its members is limited by the company’s articles to any amount unpaid on the shares held by the members. On the other hand, a company limited by guarantee does not have a share capital, liability of members is limited to the company’s articles to the amount the members undertake to contribute to the assets of the company in the event of its liquidation and its certificate of incorporation states that it is a company limited by guarantee.

Unlike a limited company that sets a limit on the liability of its members, an unlimited company does not set a limit on its members and its certificate of incorporation states that the liability of its members is unlimited. This provision makes the incorporation of an unlimited company unfavourable in the business community as all the members are held liable and there is no limit as to the amount of money or assets one can lose.

The Companies Act also provides for private and public companies. A company is private if its articles; restrict a member’s right to transfer shares, does not invite the public to subscribe to its shares, requires consent of all members to add a new member and limits the number of members to 50. A private company is limited by shares and not guarantee and its certificate of incorporation states that it is a private company. This is different to a public company that sets no limit as to the number of members it can have, it does not prohibit invitations to the public to subscribe to its shares, its members have the right to transfer their shares in the company and its certificate of incorporation states that it is a public company.

Statutory Obligations for Companies Incorporated in Kenya

1. There are various types of tax obligations that apply to a company incorporated in Kenya depending on the activities that the company carries out. The most crucial tax obligation is corporate income tax that is set at 30% for resident companies. Value Added Tax (VAT) is another tax obligation that is only mandatory under section 34 of the VAT Act No. 35 of 2013 if a company supplies of expects to supply goods worth KES. 5,000,000 or more within a period of 12 months.
2. Annual returns. Section 705 of the Companies Act requires that every company shall submit to the Companies Registrar its annual returns that will contain the following information: (a) the address of the company’s registered office, (b) the type of company and its main business activities, (c) particulars regarding the directors, secretary or secretaries (in the case of a public company) and any person appointed as a n authorised signatory of the company, (d) financial statements of exemption statement where applicable and (e) information concerning the company’s share capital, share classification scheme and shareholders.
3. Company secretary. Section 244 of the Companies Act requires that every public company should have at least 1 secretary. Failure to comply with this provision will hold every officer of the company who is in default liable, upon conviction, to a fine not exceeding KES. 500,000.
4. Register of beneficial owners. The State Law (Miscellaneous Amendments) Act No. 12 of 2019 introduced section 93A of the Companies Act that required companies to keep a register of beneficial owners. Legal Notice no. 12 of 2020, The Companies (Beneficial Ownership Information) Regulations defines a beneficial owner as a natural person who; (a) holds, whether directly or indirectly, at least 10% of issued shares, (b) exercises, whether directly or indirectly, at lease 10% of voting rights, (c) holds, whether directly or indirectly, a right to appoint of remove a director or (d) exercises, whether directly or indirectly, significant control or influence over a company.

The Companies Act makes it mandatory for all companies except for publicly listed companies to lodge with the registrar a register of its beneficial owners. Failure to do so is an offence and every officer of the company who is in default is liable, upon conviction, to a fine not exceeding KES. 500,000.

Documents Required and The Procedure for Incorporation

The procedure with respect to setting up a company in Kenya is fairly simple depending on the type of company that is being set up. However, in general, the following documents would be required for the incorporation of a company

1. Company registration form (Form CR1)
2. Application for reservation of a company name (Form CR14)
3. Particulars of the directors and secretary (Form CR2and Form CR10)
4. Statement of the company’s nominal capital
5. The company’s articles of association. It should be noted that there are model articles of association for both public and private companies as provided for by the Companies (General) Regulations that a company can adopt.
6. The residential address of directors and company secretary (Form CR8 and CR12)
7. A copy of the Kenyan national identification of each director and/or secretary or, copy of the Kenyan foreigner certificate, or in the case of a director who is not a Kenyan citizen and is not resident in Kenya, a copy of that director’s passport,
8. A passport-sized photograph of each director and/or the company secretary (where applicable)

It should be noted that it is no longer necessary for a person to manually lodge their documents rather they can incorporate a company through their e-citizen and the forms mentioned above are already embedded in e-citizen.

Once a person has filed reserved a name for their company, they will be expected to fill out the address and details of the directors, secretary, shareholders and beneficial owners. They will also provide details concerning the share capital and shares that will be issued to the respective shareholders. In the end the person incorporating a company will be required to pay a fee which may range from KES. 10,000 to 20,050 depending on the type of company that is being incorporated.

Disclaimer: Kindly note that the general information provided above does not constitute an advocate-client relationship with any reader. All information, content, and material in this article are for general informational purposes only. Readers of this article should get in touch with us/a qualified advocate to obtain legal advice with respect to any particular legal matter.