Company Formation in Kenya
Why choose Kenya to start a Company?
Kenya is ranked 56 among 190 economies in the ease of doing business, according to the latest World Bank annual ratings. In 2020, net FDI inflows for Kenya was 426 million US dollars. Kenya is the largest and most advanced economy in East and Central Africa. Its GDP accounts for more than 50 per cent of the region’s total and in terms of current market prices. In addition to aligning the country’s long-term development agenda to Vision 2030 that aims to transform Kenya into a competitive and prosperous country.
Forms of Business Registrations in Kenya
Sole Proprietorship
Business name (sole proprietorship) is a business structure operated and owned by one person. The owner is the sole decision maker in the business and is liable for all the losses and returns of the business. In most cases it is usually a business structure for small and medium sized enterprises (SMEs). It can be owned by a foreigner.
Partnerships
A partnership is a form of business structure between two or more people who have a common view of making profit and is less risky when compared to sole proprietors as any loss incurred is shared between all the partners. It also involves more than one person's expertise, borrowing synergy of multiple expertise to the business.
The Registrar of Companies is responsible for business registrations in Kenya including that of partnerships.
Limited Liability Partnership
A Limited Liability Partnership (LLP) is a unique business association provided for in the Limited Liability Partnership Act which combines the characteristics of both a company and partnership. Once it is registered, it gains a corporate legal entity different from its members and can own property in its own name. In addition, it is effective from a tax perspective as the partnership income is taxed in the hands of each partner.
Companies
The constitution of Kenya provides 2 major types of companies in Kenya.
Statutory Companies
These types of companies are incorporated by a special act of parliament and the initial capital is provided by the treasury.
Registered Companies
Registered companies can be classified into two sets: Unlimited companies and limited companies.
Unlimited companies
In this type of company set up, there are no limitations on the liability of the members to pay the debts which means that they are jointly and personally liable for the debts in case of a winding-up scenario. If the company needs more money to pay its debts or liabilities on winding up, it can call on the shareholders to contribute whatever amount is necessary to make up for the shortfall.
Limited companies
The owners or shareholders keep their own assets and finances separate from the entity. The liability of the shareholders is limited to the extent of the amount of capital they had originally invested or guaranteed in the company as per the memorandum of association which means that they are only liable up to the amount they invested and no more.
They can either be limited by shares or by guarantee
Limited by Guarantee
If the company is being wounded up, the Memorandum of association provides for the liability on the part of its members to contribute a fixed sum towards its debts. The shareholders put up a guarantee to pay an amount to pay up the debt.
Limited by shares
The liability of its members is limited by the memorandum to the amount if any, unpaid on the shares respectively held by them.
Foreign Companies in Kenya
Branch office
To open a branch office, the foreign corporation must make an application for registration. Companies incorporated outside of Kenya can do business in Kenya by registering a branch. The registrar of companies issues a certificate of compliance once all the requirements have been met.
Subsidiary
The requirement for Registering a Limited Liability Company (LLC) / Subsidiary includes the new procedures which now allows a single person to register a limited Company as a Foreigner; this means we do not need a Kenyan shareholder or director to co-own/operate the company. Incorporating a subsidiary allows the parent company limited liability from the actions of the subsidiary.
Taxation
Corporation Tax
Turnover Tax
Tax on income of small and micro enterprises with a gross turnover exceeding Kshs.1M but below Kshs 50M per annum. The rate is 1% of Gross Turnover. Turnover tax returns are due on or before 20th of the following month.
Distinction between Branch and subsidiary companies:
Basis | Branch | Subsidiary |
|---|---|---|
Taxation | Taxed as non-resident entity, local tax benefits not available | Taxed as resident entity, local tax benefits available. |
Tax Rates | Branch Company will be taxed at 37.5% Corporation Tax while a | Subsidiary Company will be taxed at 30%. |
Legal Status | Not a separate legal entity but an extension of the Parent Company | Separate legal distinct Entity from its Parent Company |
Annual Filing | Must file Branch Office as well as Parent Company’s Accounts | Must file Accounts of the Kenyan Subsidiary |
Kenyan Director | Do not need a Kenyan director to co-own the company
| Do not need a Kenyan director to co-own the company
|
Liabilities | Liabilities Extend to Parent Company | Liabilities Limited to Subsidiary |
FAQs
Qu. Is local representative required?
Ans – Yes. A foreign company may not be registered in Kenya unless it has at least one local representative. A local representative may be any person of the company’s choice but must be resident in Kenya. A local representative is always required to be present at the registered office of the company in Kenya when the office is open
Qu. Do Companies need a local director?
Ans –No, only at least a single natural person is required as director on board but for the requirement of KRA the director need to have a PIN.
Qu. Do foreign companies need to file financial statements with the Companies Registry after registration?
Ans –Yes. Foreign companies are required to file financial statements with the Companies Registry. The financial statements should be filed together with a statement supported by a statutory declaration verifying that the copies are true copies of the financial statements of the Parent Company.
Qu.Is local shareholding required?
Ans – No.
Qu.How many shareholders should a company have?
Ans –A company may have one natural shareholder. A private company must not have more than 50 members. There is no limit on the number of members that a company limited by guarantee, a public company or an unlimited company may have.
Qu.How many directors can a company have?
Ans – A private company may have one director while a public company or a company limited by guarantee must have at least two directors. At least one company director must be a natural person.
Qu.Must a company have a Company secretary?
Ans –Private companies with a share capital of less than KES 5,000,000 are not required to have a secretary. However, all public companies must have a secretary. A company secretary must be qualified under the Certified Public Secretaries of Kenya Act.
