A Guide To Setting Up A Business In Kenya

There are various legal entities that an entrepreneur can use while setting up a business in Kenya. These include:

1. Private limited companies

2. Foreign Companies

3. Public Limited companies

4. Limited Liability Partnerships

5. Partnerships

6. Sole Proprietorships

An entrepreneur chooses the entity which best suits the entrepreneur’s business based on various considerations, including the size of the business, ownership structure and tax considerations;

Below, we set out the general highlights of each legal entity.

Private Limited Companies A private company is incorporated under the Companies Act, Cap 486 Laws of Kenya. The main features of a private limited company are: a) has a maximum of fifty shareholders. b) has a minimum of one director. The company is required to have at least one director who is a natural person. c) is a separate entity from its shareholders and directors. d) liability of shareholders is limited to the amount unpaid on the shares held by members. e) members’ rights to transfer their shares is limited. A private limited company with a share capital of at least Kshs. 5,000,000 must have a company secretary A private company without a company secretary or a director resident in Kenya must appoint a contact person who is a natural person with a permanent residence in Kenya. A private limited company is required to file Annual Returns with the Registrar of Companies on the anniversary of its incorporation or date of last return. The company can be closed either through the process of striking out from the Register of Companies as provided in the Companies Act or by liquidation as provided in the Insolvency Act, Cap 53, Laws of Kenya. The corporate income tax rate for the private limited companies is 30%. The government costs for registration are Kes 10,650/-	Foreign Companies • A foreign company is a company incorporated outside Kenya. • The Companies Act, Cap 486 Laws of Kenya, provides that a foreign company should not carry on business in Kenya unless it is registered pursuant to the Act or it has applied for registration, but the application has not been dealt with within the period stipulated by the Act. • A foreign company must have at least one local representative. • A foreign company must submit to the registrar copies of its financial statements and other documents at least once in every calendar year. • A foreign company’s name can be struck off the register of companies as provided for in the Companies Act. • The corporate income tax rate for foreign companies is 37.5%. • Costs for registration of a foreign company are Kes 7550/-.
Public Limited companies • A public limited company is governed by the Companies Act, Cap 486 Laws of Kenya. • The main features of a public limited company are: • Members can transfer their shares in the company without restrictions. • Minimum number of members is one, and there is no maximum. • The company must have at least two directors, with at least one being a natural person • A public limited company must have a company secretary. • A public limited company is required to file Annual Returns with the Registrar of Companies on the anniversary of its incorporation or date of last return. • The company can be closed either through the process of striking off from the Register of Companies as provided in the Companies Act or by liquidation as provided in the Insolvency Act. • The corporate income tax rate for public limited companies is 30%. • The government costs for registration are Kes 10,650/-.	Limited Liability Partnerships • Limited liability partnerships (LLP) are governed by the Limited Liability Partnership Act. No 42 of 2011. • An LLP is a body corporate and has a separate legal personality from its partners. • It must have at least 2 members carrying on the business. • The liability of the partners is limited; therefore, a partner is not personally liable for partnership obligations. • An LLP is required to have a manager to manage the day-to-day activities of the business. • The LLP is required to submit to the Registrar of Companies any changes that occur in the LLP within 14 days after the change. • LLPs are required to file annual returns with the registrar within 30 days of the anniversary of its registration. • LLPs must lodge annual accounts of solvency or insolvency with the registrar. • An LLP can be closed through striking of the register pursuant to the Act or liquidation pursuant to the Insolvency Act Cap. 53 Laws of Kenya. • Partnerships do not pay corporate tax. Each Partner pays tax on the Partner’s share of profits. • The registration costs for a limited liability partnership is Kes 25,050/-
General Partnerships • General Partnerships are governed by the Partnership Act, 2012. • General partnerships are registered through the registration of a business name under the Registration of Business Names Act Cap. 499 Laws of Kenya. • General partnerships are not body corporates hence they are not separate legal entities from the partners • The partners have unlimited liability. • A general partnership may have a partnership agreement. • A partnership can be dissolved if the number of partners falls below two, the term of the partnership expires or by an order of the court. • Partnerships do not pay corporate tax. Each Partner pays tax on the Partner’s share of profits. • The registration cost for the business name is Kes. 950.	Limited Partnerships • These types of partnerships are regulated by the Partnership Act 2012. • Limited partnerships are registered through the registration of a business name under the Registration of Business Names Act Cap. 499 Laws of Kenya. • Limited partnerships are not body corporates and do not have a separate legal personality from the partners. • They have to have at least one general/unlimited liability partner and a limited partner • The general partner is liable for all the debts and obligations of the partnership. • The limited partner is only liable to the partnership’s obligations to the extent of their contribution to the partnership. • The general partners form the management of the partnership. • A person may cease to be a partner if the person dies, the partnership is dissolved, or the partner is deregistered as a limited partner. • Winding up of a limited partnership shall be conducted by a general partner unless otherwise provided by a court. • Partnerships do not pay corporate tax. Each Partner pays tax on the Partner’s share of profits. • The registration cost for the business name is Kes. 950.
Sole Proprietorships • A sole proprietorship is a business that is owned and operated by one person. • A sole proprietorship is registered through the registration of a business name by the proprietor under the Registration of Business Names Act. • It does not have a separate legal personality from the proprietor. • The liability of a sole proprietor is unlimited. • A sole proprietorship also has minimal regulatory compliance as there is no requirement for filing of returns. • The registration costs for a sole proprietorship is Kes 950/-

General Legal Compliance Requirements

Aside from compliance requirements imposed on a business by the law establishing it as a legal entity or form of business, there are other legal compliance obligations, including but not limited to the following:

a) Tax Obligations – Different legal entities/forms and businesses have different tax compliance obligations. It is, therefore, critical to evaluate the applicable taxes at the point of incorporation.

b) Licenses and Permits - It is also important to obtain the necessary permits and licenses required to conduct the business lawfully.

c) Employers' Obligations - There are additional legal requirements for businesses with employees, such as registration and payment of statutory benefits like NSSF contributions, NHIF/SHA contributions, NITA contributions, and Housing Levy.