Legal Requirements for Starting a Business in Kenya | Full Guide

Introduction to Legal Requirements for Starting a Business in Kenya

Doing business in Kenya is something that most of the individuals are interested to do. The various businesses that have been started are often driven by the desire to make money. However, doing business on one’s own company is perhaps one of the most rewarding and most difficult things that one can do. This guide will assist you in making that a reality. Issues related to law, finance and, work post incorporation of the company will also be covered. All the legal requirements for starting a business in Kenya will be covered here. You will have an ample understanding of the situation that becomes quite useful in taking the first step.

The Companies Registration in Kenya nowadays is done under the Companies Act 12 of 2015 as opposed to the company registration act of 2000. This act explains the different forms of business. The common forms are Private Limited Company, Public Limited Company and a Partnership Limited. Some of the differences include the provisions and obligations placed in the types as well as the arrangement of the capital stock owners for the three forms.

Understanding the Legal Requirements

The Companies Act of 2015 governs business registration in Kenya. It also outlines how to set up different entities. The main types include Private and Public Limited Companies, as well as Partnerships. Each type varies in requirements, liabilities, and shareholding rules.

1. Private Company: Over 90% of private companies are limited by shares and articles. They have a maximum of 50 members and cannot invite the public to subscribe for shares.
2. Public Company: A public limited company’s shares can be offered to the public. There is no limit on membership.
3. Company Limited By Guarantee: It usually applies to charities. Members’ liability is limited to their guarantees.
4. Limited Liability Partnership: This business form has features of a company and a partnership. It limits liability for partners.

When starting a company, first, learn about the different types. Then, choose one that aligns with your goals and legal needs. This choice will affect how you register, the rules you follow, and how your company is structured.

Understanding these distinctions is vital for choosing the right structure for your business.

Prerequisites for Company Registration

There are a number of basic requirements that you must fulfil before you start to register a company in Kenya which are.

First, pick a unique name for your company that isn’t already taken. Then, search and reserve it to ensure it’s available and meets legal standards.

Next, create your company’s memorandum and articles of association. These documents explain your company’s purpose, share types, and rules. They are essential and must follow the corporations act.

Additionally, provide more documents. This includes IDs for members, directors, shareholders, and other stakeholders. Also, include any necessary permits, licenses, or approvals.

In conclusion, properly preparing these documents simplifies registration and ensures success.

1. Memorandum and Articles of Association: State the company’s goals, management structure, and rules.
2. Form CR 1: The designated form must be filled with all company information.
3. ID Documents: Copies of shareholders and directors’ ID cards or passports.
4. KRA PIN – Tax Identification Number for Directors _who are all shareholders and clients in General.
5. Address verification: Document such as this which show the company registered office.

Every business needs a unique name to register. First, check eCitizen to see if your name is available and doesn’t violate trademarks.

Choosing a Company Name

Choosing a company name is crucial. It should reflect your brand, be memorable, and not match any existing names in Kenya. Use the eCitizen portal to check name availability.

Preparing the Memorandum and Articles of Association

The Memorandum of Association outlines your company’s goals. Meanwhile, the Articles of Association establish the rules for operation. It’s wise to consult a legal expert when drafting these documents to ensure they comply with laws.

Steps to Register a Company in Kenya

Registering a company in Kenya involves several steps. They ensure compliance with local laws.

Step 1: Choose and Reserve a Company Name

First of all, ascertain whether the company name is legal and can be used. Once this has been done, proceed to register it with the Registrar of Companies.

Step 2: Prepare and Submit Registration Documents

Also, these include

• Memorandum
• Articles of association
• Directors and shareholder IDs
• And all related documents and certificates.

Next, send them to the Companies Registry. First, secure a company name. Then, draft a registration letter. Typically, the key requirements are:

• Form CR1: Directors of the company.
• Form CR2: Percentage of shareholding.
• Form CR8: Details of directors.
• Statement of Nominal Capital: An account or statement of how much share-capital a company has.
• Form BOF 1: Beneficial owner’s declaration.
• These forms and the prescribed fees can be lodged on eCitizen and at the Company Registrar or Companies house.

Step 3: Registration Fees Payment

After submitting the documents, pay the registration fee to the Registrar of Companies. This fee varies based on the company’s type, such as limited by shares or guarantees.

Step 4: Issuance of Certificate of Incorporation

The Company Registrar accepts your application, and issues a certificate of incorporation. Officially recognizing your company as a legal entity

Costs Involved in Registering a Company

Starting a company in Kenya involves various costs. You need to include these in your business plan. The main costs are:

• Government Fees: Starting from KES 10,000 for registration.
• Legal Fees: Optional, depending on whether you seek professional assistance.
• Post-Registration Costs: This may include costs for filing annual returns and obtaining necessary licenses.

Post-Registration Requirements

Starting a local company in Kenya takes time and focus. The process varies based on the tasks. After registration, a company must meet immediate and ongoing obligations. These include:

1. Kenya Revenue Authority (KRA) _Personal Identification Number (PIN). A step such as this is key for business. It will help your business tax, including tax determination.
2. Setting up a corporate bank account. Corporations must open a separate bank account. This will help keep adequate records of the company's activities.
3. Filing for Value Added Tax (VAT) Registration. Your company may need to register for VAT if it exceeds some revenue thresholds in a year.

Apart from the above, it will be vital for you from time to time to repeat some legal duties as those described for instance.

• Filing annual returns: Every company in Kenya must file annual returns with the Registrar of Companies. This includes every registered business.
• Holding Annual General Meetings (AGMs): The law mandates a company to hold an annual meeting. There, it discusses and votes on key issues, such as electing board members and approving accounts.

• Maintaining proper books of accounts: An effective accounting system requires meeting deadlines. It also needs timely records of business activities.

Common Challenges and How to Overcome Them

While registering a company in Kenya is straightforward, challenges may arise. Common pitfalls include:

• Name Reservation Issues: Ensure your chosen name is unique to avoid rejection.
• Incomplete Documentation: Double-check that all required documents are submitted correctly.
• Delays in Processing: Be proactive in following up on your application status.

Here's a table summarizing the challenges and solutions when registering a business in Kenya:

Conclusion

In registering local businesses, the procedure is more or less the same but the costs and requirements differ at varying degrees. Companies with less than 5 million in share capital are required to have a secretary and a local director or a local company resident contact in Kenya.

After registration of the companies, it is a prerequisite for all the companies to obtain business licenses, business permits, which are regulated in different counties. The same applies for the ratios and criteria needed for companies to be operational in Kenya. Therefore, first, let them choose the location, then let them follow the locality's starting up procedures.

Post registration and compliance procedures are also properly followed to facilitate operations without hitches. This guide adequately prepares on how to do business in Kenya and successfully so.

Frequently Asked Questions for Legal Requirements for Registering a Business in Kenya

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