What is the main source of law authorising this entity form?

The Companies Act 2015 and regulations and other Statutes governing the specific sectors.

Give a brief summary of the entity form:

Does the entity possess separate legal personality?

Private limited companies limited by shares have legal personality;

(Maximum) period of existence

There is no prescribed maximum period of existence;

Governing document(s)

The Company is governed by its Articles of Association lodged and registered with Registrar of Companies or it may adopt all or any of the provisions of the prescribed version of the model Articles;

Liability of incorporators / shareholders

The shareholders are personally liable only to the extent of their unpaid shares as per the Articles of Association if a condition in the Memorandum of Association states that the liability of members of the company is limited.

Can this type of entity be involved in international transactions and restructurings (e.g. cross border mergers, asset acquisitions, equity acquisitions, etc.)?

Under the Kenyan law, it is possible to enter into legal mergers subject to the various sectoral legislations i.e. (Competition Act No. 12 of 2010 as revised 2016 inter alia Section 41 (2) (c) and Capital Markets Act CAP 485A) among others and conventions to which Kenya is a member state.

Can this type of entity be publicly listed or held?

Yes. Upon conversion by passing a special resolution to that effect and satisfying the conditions specified in Section 70 (2) and Section 74(2) of the Companies Act 2015.

Can this type of entity be used for a non-profit or charitable organization?

Generally, No since it is a commercial entity with the ability to make profits.

Give a brief summary of the process of incorporation, formation, or organization, including:

(1) Main documents required; (2) Involvement of notary, company register, governmental authorities; (3) Timing (estimate); (4) Main costs, including registration and similar fees (excluding legal fees); (5) Is a description of the anticipated business or purpose of the entity required for incorporation, formation or organization?

A proposed director or officer of the Company is required to log into their e-citizen account and make an application for registration of a Private Limited Company through the Online Companies Registry System. On the Online System an applicant is required to fill in details of at least three proposed suitable names for the company and the following additional information:

• The designation and Postal Address of the Applicant;
• Whether the Company shall adopt the model Articles of Association or has prepared its own;
• The nature of the intended business of the Company and whether it is regulated or not;
• The target business date;
• The Registered Office of the Company and its contact details such as its postal address and telephone number;
• The share information of the Company; and
• Details of the Company’s directors, shareholders and beneficial owners.

After filling in the requisite information, the incorporation documents being Forms CR1 , CR2, CR8 and a Statement of Nominal Capital are automatically generated from the system, for execution by the proposed directors of the Company.

Once the incorporation documents have been executed, they are to be scanned and reuploaded into the Companies Online Registry System.

Thereafter, a name reservation and Incorporation fee of Kes. 10,750 is paid to formally lodge the application for registration.

A Name Reservation Certificate is generated if any of the initially proposed names are available and suitable and if not the Registry shall prompt the applicant to propose other suitable names for the Company.

Once a Name Reservation Certificate is generated, it takes a maximum of a week for registration to be completed and a Certificate of Incorporation together with a Company Search (Form CR 12) is generated.

Statutory Requirements

• Register for a Personal Identity Number, Value Added Tax & Pay-As-You-Earn with the Kenya Revenue Authority.
• Register for the National Hospital Insurance Fund. This is mandatory medical contribution for your employees.
• Register for the National Social Security Fund. It is mandatory to contribute to your employees’ retirement fund.
• Register for a Business Premises Licence. This application is made to the local county office. You will need a premise prior to submitting this application.

Minimum number of incorporators / shareholders and residency requirements

There must be at least one person, the act seems silent on the requirement for residency. As such the person can be resident anywhere in the globe. However the said act must be read together with the Kenya Citizenship and Immigration Act 2011 that will require non-citizens to regularize their immigration status.

Note: that upon incorporation, the company must have at least one director being resident in Kenya or an agent for purposes of receiving service of processes.

Minimum number of directors (or other applicable officers) and residency requirements

There must be at least one director and a shareholder who can be resident either in Kenya or abroad.

Minimum share capital, or equivalent, and payment requirements (including opening a bank account)

There is no minimum share capital requirement when setting up a company in Kenya. However, foreigners desirous of relocating and running a business in Kenya, need to have a work permit from the Department of Immigration either under class H or Class A depending on whether they are the proprietor or simply an employee.

Is the physical presence of incorporators / directors required in the jurisdiction for incorporation, formation or organization?

The act is silent on the same. Thus one can act by donating his or her powers to an agent by a power of attorney.

Is a tax identification number, or equivalent, required? If so, how is it obtained?

Yes. (commonly known as KRA PIN) The same is obtained after incorporation of the company through the Kenya Revenue Authority Portal.

What is the title of the applicable company registry?

The Companies Registry.

What types of information must be filed at the (company) register, and which of them will it be publicly available, e.g.:

The following are the registration documents to be lodged with the Registrar (in accordance with Section 13 of the Companies Act 2015):

• An application for registration of the company (Form CR1);
• A copy of the memorandum of association or Form CR2;
• Unless adopting the default model articles, a copy of the proposed Articles of Association;
• Proposed name of the company;
• Proposed location of the registered office of the company;
• Particulars of Directors (Form CR 8);
• Liability of the members, whether by shares or guarantee;
• Where the said application is done by an agent, the agent shall include his or her name and address;
• Whether the company is a private company or public;
• Share Capital - (if applicable) a statement of nominal capital ., etc.

 

What is the title of the executive body and its members? What are their main duties, tasks and responsibilities?

As per the Articles of Association or Committee of Directors in the event of adoption of the Default Model Articles.

How are the members of the executive body appointed, dismissed and replaced?

Appointment of Directors:

A person willing to be director may be appointed to be a director by an ordinary resolution at a meeting.

Disqualification of directors

A director must meet the following requirements, failing which the director’s appointment is rendered void:

• Must be 18 years of age and above;
• Must be of sound mind and disposition;
• Must attain all the qualification of a director provided under the Company’s Articles of Association;
• Must not be in Bankruptcy, etc.

Removal of Directors

A company may remove a director before the end of the director's period of office by ordinary resolution at a meeting. However, a director has a statutory right to protest against such removal whether by written representations or orally in the meeting where the resolution for his or her removal is proposed.

Replacement of directors

A replacement director may be appointed by an ordinary resolution during the meeting at which a previous director is removed or alternatively may be filled as a casual vacancy.

Is it possible to appoint corporate directors or must all directors be natural persons?

Yes.

Is there a requirement to have non-executive directors? How are they appointed, dismissed and replaced? Do non-executive directors serve on a separate body (two-tier structure) or can a one-tier board (with executive and non-executives) be appointed, or is some alternate structure used?

Generally, No. Though where the company does not adopt the default model articles, they might provide for a Board of Directors consisting of both Executive and Non-executive directors or have a two-tier structure..

What is the title of the body of owners / shareholders / members, and what are the main tasks / responsibilities / powers of that body?

• Attendance at general meetings;
• Vote;
• Right to appoint a proxy to attend a meeting;
• Right to receive a circulation of proposed written resolution;
• Right to receive copies of financial statements and reports; and
• Right to require directors to call a general meeting.

What are the majority and quorum requirements for decisions by the shareholders? Can they be varied or changed?

Shareholders. Some of the rights and responsibilities of shareholders include:-

The issue of Quorum is determined by the Company’s Articles of Association.

However, the Companies Act at section 292, provides that for a company limited by shares or guarantee with one member, one member present at a meeting constitutes a quorum and in any other case two members shall constitute a quorum.

Any special governance regimes (e.g. depending on size, being listed at a stock exchange, or other criteria)?

There are special governance regimes applying to the various sectors i.e. Insurance companies, Telecommunication service providers and listed Companies

For listed and unlisted companies that issue securities to the Public, the Code of Corporate Governance Practices for Issuers of Securities to the Public sets out principles and specific governance structures.

What are the periodic accounting obligations incumbent upon the entity? To whom must those accounts be submitted?

A private company is required to lodge annual returns with the Registrar under section 705 of the Companies Act. Pursuant to section 635 of the Companies Act, the directors of a private company are also required to prepare annual financial statements and submit the same to members of the Company and file these financial statements with the Registrar of Companies..

Is the entity permitted to determine its own financial year?

Is the entity subject to any statutory (external) auditor obligations?

Yes. A private company is required to appoint an auditor or auditors for each financial year of the company, unless the directors reasonably resolve otherwise on the ground that an audited financial statement is unlikely to be required.

In the case of an unquoted company, its annual financial statement and reports for a financial year consist of

• its annual financial statement;
• the directors' report; and
• the auditor's report on the financial statement and directors' report unless the company is exempt from audit.

Requirements to appoint other persons (officers, secretary, internal auditor / accountants). If so, what are their functions? Are there any residency requirements?

Statutorily, a private company is required to have a Company Secretary only if it has a paid up capital of five million shillings or more.

The Company Secretary is in charge of ensuring that the Company is compliant with legal and statutory obligations and that their annual returns are filed promptly with the Registrar of Companies.

The Company Secretary is also in charge of ensuring notices for general and annual general meetings are circulated among members and ensure that the records of the Company such as the Register of Charges, Register of Members and Minute Books are properly kept and updated.

Where a private company has a share capital of less than five million shillings, the company need not appoint a Company Secretary and anything required to be done by a secretary of the company may be done by a director or any other person authorised for that purpose by the directors.

Internal Auditors are appointed by the Board of Directors to oversee the internal control systems covering financial reporting while the External Auditors are appointed by the shareholders by an ordinary resolution in an Annual General Meeting, to determine and give a report to shareholders on whether the financial statements of the company reflect a true and fair view of the financial position of the company.

What is the title designated for 'ownership interests' (e.g. shares, quota, interests, membership)?

Shares.

Are different classes of ownership interests possible? If so, what are some examples of different classes?

Yes different classes of shares are possible

Preference share, Redeemable shares, Non-voting shares, Deferred ordinary shares.

Note: the company may issue shares that have preferred, deferred or other special rights; or any restrictions, whether in regard to dividend, voting, return of capital or otherwise, that the company may from time to time by ordinary resolution determine. Subject to Part XX of the Act, the company may issue shares on terms providing that they are to be redeemed, or liable to be redeemed, at the option of the company or the holders of the shares. The directors may determine the terms, conditions and manner of redemption of the shares.

What documentation is required for the transfer of ownership interests?

The shares and any other interests of a member in a company are transferable in accordance with the company's articles.

Transfer of Shares in a company takes place when a shareholder as the transferor, executes a deed of transfer of shares in favour of a transferee.

The company is required to register the deed of transfer at the Companies registry no later than two months from the date of transfer. (Section 498 of the Companies Act)

• Stamp duty is payable over the deed of transfer of shares before it is lodged (registered) by the Registrar of Companies.

Are there any additional formal requirements required for the transfer of ownership (notary, approvals, stamping, filings, corporate records)?

The Company Secretary shall obtain a Form CR 12 from the Companies Registry to confirm that the changes in ownership of shares have been effected successfully. The Form CR12 is a search with respect to the Company that contains details of its registered office, postal address, phone number and email address. The Form CR12 also contains a list of the Company’s directors and shareholders and the shares that they hold in the company.

Are there any applicable stamp duties imposed when transferring ownership interests?

Yes. Stamp duty is levied at a rate of 1% on the transfer of shares and Capital Gains Tax at a rate of 5% on the net profit gained from the transfer.

How are shares issued? (including information on payment obligations, registration requirements)

Shares are allotted by the Company. They have to have a fixed nominal value denominated in Kenya shillings that is paid by the allottee (prospective shareholder).

The directors of a company have to seek authorisation by the company to issue shares in the company (Section 329 of the Companies Act)

A company is required to register an allotment of shares at the Companies Registry within two months after the date of the allotment. (Section 332 of the Companies Act)

Further information on equity contributions, e.g., non-cash payments on shares, (share premium) contributions without issuances of shares, can partially paid shares/ownership interests be permitted and what are the restrictions on them?

Shares allotted by a company, and any premium on them, may be paid up in money or in money's worth means of payment. (including goodwill and know-how).

Any requirements with respect to share cancellation, share repurchase and other capital reductions

This is commonly referred to as a share buyback in Kenya. A company desirous of buying back its shares should take into account the following preliminary considerations before carrying out a share buyback:

• Whether the company’s articles permit the buyback. A company will be deemed to have authority so long as the articles do not prohibit the buyback
• Whether there are any private agreements (e.g. shareholder agreements) which may prohibit the company’s ability to purchase its own shares.
• Whether there are any pre-emption rights which restrict the transfer of shares e.g. there may be a requirement for the shares proposed to be bought back to be offered to existing shareholders before they can be transferred to the company. If triggered, these provisions would need to be complied with or amended before the company undertakes a share buyback
• Whether there is any prohibition on giving financial assistance which could prevent the company from buying its own shares. Under the Companies Act, a company may give financial assistance for the acquisition of its own shares, so if there is any restriction on the giving of financial assistance in the company’s constitution, this should be removed.
• Whether the company has more than one class of shares. Whether the buyback will result in the variation of the rights attaching to those classes of shares (in which case class consent to vary will be required).
• Whether there is any banking facility which might restrict the company’s ability to undertake a buyback.

The terms of the contract should be approved by a special resolution of the company either before the contract is entered into or the contract should state that no shares will be purchased until its terms have been approved by resolution of the shareholders.

After the share buyback, the company must lodge a return of purchase with the Registrar of Companies (the Registrar) and after the shares are cancelled a notice of the same must be also lodged with the Registrar together with a Statement of Capital.

Restrictions

The Companies Act has introduced provisions that allow companies limited by shares, whether private or public and companies limited by guarantee with a share capital to purchase their own shares (including redeemable shares) subject to any restrictions or prohibitions in its articles and the provisions of the Act on purchase of its own shares by a company.

Under the Companies Act, a limited company may not purchase its own shares if as a result of the purchase there would no longer be any issued shares of the company other than redeemable shares or shares held as treasury shares. Secondly, a limited company may not purchase its own shares unless they are fully paid and lastly a limited company may purchase its own shares only out of distributable profits of the company or the proceeds of a fresh issue of shares made for the purpose of financing the purchase. A private limited company may however purchase its own shares out of capital.

Any requirements with respect to distributions to shareholders?

Part XVII, Division 2 of the Companies Act, provides for the general rules of distribution of assets to the shareholders. A company may make a distribution only out of profits available for that purpose. The profits available for distribution by the Company are the accumulated profits (so far as not previously utilised by distribution or capitalisation) less its accumulated realised losses. ( so far as not previously written off in a lawfully made reduction or reorganization of capital).

Can the owners or shareholders adopt a restrictive or governing agreement among themselves such as a Shareholders Agreement?

Yes. The same should not offend the Articles.

Which are the typical annual maintenance costs of maintaining the existence and legal good standing of such an entity (excluding legal fees)?

A company must maintain its business address and have at least a director or agent in the country for purposes of service; annual returns must be prepared and filed each financial year; and the relevant taxes must be paid.

What are the general corporate tax rates? (Specify if there is a national versus local distinction).

The current corporate tax rate applicable in Kenya is 30% in the case of resident corporations (i.e. limited liability companies). A non-resident company with a permanent establishment in Kenya is taxed at 37.5%.

Summary of any specific matters, e.g. recent or prospective major legal developments

It is now a legal requirement that the name and address of the beneficial owners (if any) be entered in the companies’ register of members which must be lodged with the Registrar of Companies within 30 days after completing its preparation (in accordance with section 93 (8) of the Principal Act) and which will be available for inspection by members of the public. Section 93 (9) further provides that any amendment to the register of members is to be lodged with the Registrar within 14 days after making the amendment. This however does not apply to public limited companies (those trading in the stock market) as their membership constantly changes.

Section 975(2)(b) of the principal Act under which a foreign company was required to demonstrate that at least 30% of its shareholding is held by Kenyan citizens by birth was repealed / deleted by the Finance Act, 2016. This amendment became effective on 1st January, 2017.

The provisions on maintaining and affixing of a common seal for execution and authentication of documents by companies under Sections 35, 37, 38, 39, 42 and 43 of the Companies Act No 17 of 2015 were repealed by the Business Laws (Amendment) Act of 2020. Based on the foregoing, Companies shall not be required under any circumstance to maintain a company seal. This will enable companies to save up on the costs of preparation of seals and in in other administrative functions and also minimize the cases of erroneous sealing of documents where the seals do not match the company names.