Unemployment among the youth is burgeoning and there are no signs of it plummeting. It has been blamed on corruption among other factors. However, majority of the youth in Kenya only rely on office employment as the main form of employment and most do not venture into self-employment. Youths have been urged to form companies so that they can competitively participate in the growth of the economy and also to enable them create even more job opportunities for the others. But the question comes, how does one form a company, what is the process of registering a company and what charges are incurred by anyone who wishes to register a company. This article shall extensively explore the process of registering a private limited liability company in Kenya. It shall also elaborate the key statutory requirements that one ought to fulfill in order for one to register a company for citizens.
To begin with, it is important to understand the meaning and concept of a company. According to the Companies Act, a company means a company that is formed and registered under this act or an existing company. The definition is vague. However, a company can be defined as an independent legal entity, with the capacity to be sued and sue, enter into contracts and has a liability. From this we can see that a company has cooperate personality has a liability. By corporate personality, it means that the company is independent of its owners and is its own legal person and by liability, it looks at the extent to which one may be made accountable in law. The liability can be limited or unlimited.
To begin with, a private company, under section 9 is one which:
- The articles of association restrict a member the right to transfer shares. This means that the members cannot transfer shares.
- The articles of association limit the number of members to fifty.
- The articles of association prohibit invitations to the public to subscribe to the shares or debentures of the company.
- It is not a company limited by guarantee.
- Its certificate of incorporation state that it is a private company.
In Kenya companies are incorporated by means of registration. And the registration is done with the registrar of companies.
Under section 11 of the Act, a Company can be formed by one or more persons. It also stipulates that a company formed for unlawful purposes may not be registered.
Once the registration process is complete, it results in a company with a name, registered office, articles of association, members and a separate legal personality.
Note: the documents required to be completed up to the incorporation stage are provided for in the Companies (general) Regulations 2015 and also on e-citizen and are provided therein. Secondly, in each process, a fee is charged. I have not included the fees since they vary in some instances.
1. Apply for e-citizen
This is done online. It is important as most government services are now offered online. Also, most governmental payments are made via the e-citizen account. The registration can be done here. What you need in your national id, email address, passport photo and your phone number to create an account.
2. Apply and pay for a company name search.
Being a ‘person’, a company has to have a name. and for the name to be registered, it has to comply with certain provisions as follows.
- Application for reservation of a name.
Under section 48 of the Act, the Registrar may, on written application, reserve a name pending registration of a company or change of name by a company.
The reservation of a name remains in force for a period of thirty (30) days.
However, the Registrar may, for special reasons, allow the extension of the period. However, the extension period cannot exceed sixty (60) days. During the period in which the reservation is in force, no other company is entitled to be registered by that name.
The application is made by filling a form (See; Form CR14-application and reservation of company name).
This procedure can also be done online using the e-citizen platform. (it is better to do it online as it is simpler and more convenient.)
- Circumstances under which a name will not be registered.
Rule 20 of the Companies Regulations prohibits the registration of a company by a particular name if:
- it is the same as a name appearing in the Registrar’s Index of Company Names, Business Names, Limited Liability Partnerships or Partnerships;
- it has a close phonetic resemblance to the name of company, business name, limited liability partnership or partnership that is already registered;
- it differs from the name of another company, business name, limited liability partnership or partnership that is already registered only by the addition of the name of a place, locality or region within Kenya;
- it is identical to, or closely resembles, that of a name that has been reserved by the Registrar for use in connection with a proposed company, business name, limited liability partnership or partnership;
- it is identical to. or closely resembles, the name of a company or limited liability partnership that has been dissolved, or has been struck off the register of companies or register of limited liability partnerships, or the entry of a business in the register of business names or partnerships kept under the Registration of Business Names Act 2015 has been cancelled;
- it is the same as a name of a body corporate or established under a written law;
- the Registrar believes on reasonable grounds that its use would involve the commission of a criminal offence;
- the Registrar believes on reasonable grounds that it is offensive or undesirable or contrary to public interest.
- Indications for type of company
Under section 54 of the Companies Act, a private company whose liability is unlimited may be registered only with a name that ends with the word ‘limited’ or the abbreviation ‘ltd.
- Permitted characters
Under Rule 9 of the Companies Regulations, the following should be adhered to when it comes to names and characters of a company.
First, the characters, signs, symbols (including accents and other diacritical marks) and punctuation set out Part 1 of the Sixth Schedule can be used in the name of a company registered or to be registered under the Act. In this case.
Secondly, the following characters can be used in any part of a company name:
- any character that has an accent or other diacritical mark, sign or symbol set out in Part 1 of the Sixth Schedule;
- 0, 1, 2, 3, 4, 5, 6, 7, 8 or 9;
- a full stop, comma, colon, semi-colon or hyphen;
- any other punctuation referred to in column 1 of Part 2 of the Sixth Schedule but only in one of the forms set out opposite that punctuation in column 2 of that Part.
Thirdly, the signs and symbols set out in Part 3 of the Sixth Schedule are characters that can be used but not if they are one of the first three characters of a company’s name.
Lastly, the name of a company may not consist of more than 160 permitted characters.
- Display of registered name by the company
Rule 14 of the Companies Regulations require a company to continuously display its registered name in legible characters at:
- its registered office
- every business venue of the company (business venue means an office or a place, other than the company’s registered office where it carries on its business and is open to the public
A company is also required to ensure that its registered name is properly positioned so that it can be easily seen by any visitor to the office or business venue.
- Obtain a company name reservation
After, the application is successful, one obtains a company name reservation. However, if you cannot obtain one, that means that the name that you have submitted does not comply with the provisions of the law and you will have to reapply again. At the same time, this document can be obtained online via the e-citizen platform.
3. Apply and pay for registration of the company
In order to successfully complete registration, a company must register the following documents with the registrar of companies:
- application for registration (Form CR1)
- memorandum of association (Form CR2-Limited companies by shares, Form CR3-limited companies by guarantee, Form CR4-Unlimited companies)
- articles of association (this is the company’s constitution)
- notice of residential address of directors (Form CR8)
- a statement of nominal capital
Application for registration
Section 13 provides that for one to register a company, he must register a company must file with the Registrar of companies an application for registration of the company, a memorandum of association and the proposed articles of association.
The application complies with the section if it states
- the proposed name of the company;
- the proposed location of the registered office of the company;
- whether the liability of the members of the company is to be limited, and if so whether it is to be limited by shares or by guarantee;
- whether the company is to be a private or a public company.
The application must also be supported by:
- a statement of capital and initial shareholding for companies with a share capital or a statement of guarantee for companies limited by guarantee;
- a statement of the company’s proposed officers.
If the application is submitted by an agent, the agent must include in the application his/her name and address.
- Statement of Capital and Initial Shareholding for Companies with Share Capital
If a company is to have a share capital, the application for registration must be supported by a statement of capital and initial shareholding contained in the company’s memorandum of association (See; Forms CR1 and CR2).
However, the statement is not required if a company is not to have a share capital i.e. either a limited company by guarantee, which must instead file a statement of guarantee or an unlimited company without a share capital (Section 13(4), Companies Act, 2015).
Under section 14, the statement of capital and initial shareholding must give the following details about the company’s share capital to be taken upon formation by the subscribers to the company.
- the total number of shares of the company to be taken on formation by the subscribers to the memorandum of association
- the aggregate nominal value of the shares
- the class of shares and the rights attached, if any.
- Statement of the Company’s Proposed Officers
Under section 16 of the Companies Act, an application for registration of a company must contain a statement of the company’s proposed officers. (See; Form CR1)
The statement of the company’s proposed officers must contain;
- the particulars of the person who is, or persons who are, to be the first director or directors of the company and their consent; (further particulars of the proposed director(s) are contained in Form CR8-Notice of residential address of directors)
- in the case of a company that is to be a public company, the particulars of the person who is or the persons who are to be the first secretary or joint secretaries of the company, and their consent;
- the particulars of any person who is to be appointed as an authorized signatory of the company.
On registration of the company, the persons named in the statement take up office as from the date of incorporation.
Note: appointment of a company secretary is optional for a private company. Therefore, the particulars of a company secretary are not required for a private company if it is not proposed to have a secretary upon registration.
- Additional Documents to Accompany Application for Registration of a Company
Under Rule 5 of the Companies Regulations, the following documents should be attached to the application for registration of a company:
- a copy of the personal identification number (PIN) certificate of each person proposed to be a director;
- a copy of the identity card or passport of each such person;
- a passport size photograph of each such person;
- in the case of a non-Kenyan citizen, a copy of the person’s passport and a passport size photograph.
Memorandum of association
Under section 11 of the Companies Act, Persons who wish to form a company under the Companies Act, 2015 must subscribe their names to a memorandum of association.
Basically, the memorandum of association states that the subscribers wish to form a company and accept to become members of the company.
If the company is to have a share capital, the memorandum must state that the subscribers agree to take at least one share each (Section 12(1), Companies Act, 2015).
In order for a company to be registered, the memorandum of association must be in the prescribed format/form and must be authenticated (signed) by each of the subscribers (Form CR2-limited companies by shares.)
Articles of association
An application for registration of a company must be accompanied by a copy of its proposed articles of association. Articles of association is a document that sets out the internal regulations of a company. Basically, the Constitution of the Company.
A company can adopt the model articles set out in the Regulations OR adopt its own articles.
The Companies (General) Regulations, 2015 prescribe different versions of articles for different types of companies. Therefore, a company may adopt all or any of the provisions of a prescribed version of model articles that best suit its description or type.
However, when registering a private company limited by shares, a public company limited by shares or a company limited by guarantee, there is no need to register or attach the articles to the application, if the company is to use the model articles prescribed by the Attorney General in the Companies (General) Regulations, 2015.
Where a company does not adopt the prescribed model articles, Section 13(5) provides that the proposed articles to accompany the application must comply with the following rules:
- Must be contained in a single document;
- Must be printed;
- Must be divided into paragraphs numbered consecutively;
- Must be dated;
- Must be signed by each subscriber to the articles. A subscriber’s signature should be attested by a witness, whose name, occupation and postal address is written or printed below the subscriber’s signature.
NOTE: The articles of association of any company, whether or not they are the prescribed model articles, can be altered/amended after registration.
Under section 17, upon satisfaction that the application for registration, the memorandum of association, articles of association and the accompanying documents are in order, the Registrar of companies registers the company and allocates to it a unique identifying number.
Note: the registration process is done online on e-citizen under the business registration tab.
4. Certificate of Incorporation
Section 18(1) of the Companies Act 2015 provides that upon successful registration of a company, the Registrar shall issue the company with a certificate of incorporation, which is conclusive evidence that the requirements of the Companies Act, 2015 relating to registration have been complied with and that the company is duly registered under the Act.
A company’s certificate of incorporation states the following;
- the name of the company and its unique identifying number;
- the date of the company’s incorporation. It is from this date that the subscribers to the memorandum, become a body corporate (an artificial legal person) by the name stated in the certificate and the company can do all the things that an incorporated body can do.
- whether the company’s liability is limited or unlimited, and if it is limited, whether it is limited by shares or by guarantee;
- whether the company is private or public.
The certificate of incorporation should bear the Registrar’s signature and should be authenticated with the Registrars official seal.
Under section 19, from the date of incorporation stated on the certificate of incorporation, the company is a body corporate with its registered office at the address stated in the application for registration.
5. Tax Requirements
Under section 4 of the Income Tax Act, income from businesses is taxable. In addition, under the first schedule to the Tax Procedures Act, a pin is required for the registration of a business name and registration of a company. In addition, Pin is required for the filing of returns.
When a company wants to apply for a pin, it must have the following documents:
- Copy of Certificate of Incorporation.
- Copy of CR12.
- Copy of Memorandum and Article of Association (optional).
- Copy of PIN Certificate for one of the company’s directors.
- Copy of Tax Compliance certificate of one of the company’s directors.
- Copy of the Acknowledgement receipt.
Pin registration is done online via iTax. The procedure is as follows: Visit iTax; Select “New PIN Registration”; Fill the online form appropriately; Submit online application.
NOTE: upon completion, you will receive an acknowledgment receipt
A follow up email will be sent to you with either further instructions on where to present the required documentation for verification or a PIN certificate.
6. Obtain a unified business permit.
This is a mandatory license that is issued to traders in Nairobi and has to be renewed before 31st of March every year. It covers all other licenses required and one does not have to obtain many permits.
To get this permit, one has to first create an account on the Nairobi city county website and obtain the permit.
7. National Hospital Insurance Fund
Under section 16 of the NHIF Act, an employer has the obligation to make statutory deductions from the employee’s salaries and remit them to the board. However, for this to happen, one must apply for NHIF employer registration.
The employer is required to submit the following documents online:
- The employer’s registration form; (this document is easily accessible from the NHIF’s website.)
- Certificate of registration;
- Pin certificate.
Upon successful registration, one is issued with an employer’s code.
8. Social security registration
Under section 19 of the NSSF Act, every employer, who under a contract of service, employs one employee or more shall register with the Fund as a contributing employer and shall, register his employee or employees, as members of the Fund.
To register a company under NSSF, one is required to complete the NSSF employer’s registration form and attach certificate of incorporation, registration of business name and a trading license. After successful registration, one is issued with a NSSF certificate of registration. See important information here.
The procedure of setting up a company in Kenya is lengthy. Nonetheless, it has been simplified as most procedures are done online. Moreover incorporation has several advantages. They include the fact that members cannot be liable for the company’s debt as it is a separate legal entity, another advantage is that a company has perpetual succession. That means that even if the members die, the company survives death and can only be terminated legally. The disadvantages include: the process of forming a company is lengthy and there are too many formalities when it comes to formation and registration of a company.
In the next article, we shall look at the process of setting up a subsidiary or a branch of a foreign company in Kenya.