You are probably thinking about incorporating a Company in Kenya but something is still not clear to you on the type of Company that is best suited to meet or achieve your unique purpose. This article would help you figure out clearly as to which special purpose vehicle would fit your circumstances in both your short term and long term goals. Failure to make due considerations and identify the distinctive features has resulted to many unplanned conversions, overhead costs in effecting amendments, penalties on unknown requirements of the type of company incorporated and many more unwarranted consequences. This may as well be avoided at the preliminary stages of pre-incorporation of Companies:
In the broadest sense, there are two types of Companies namely: Limited and Unlimited Companies. The companies are limited in the sense that they are held accountable to the debts of the Company to a certain extent. Such companies may therefore be limited by guarantee or share capital.
Unlimited Companies
For unlimited companies there is no limitation on the liability of members to pay the debts of the company and the members are jointly and personally liable for the debts in case of winding up. However such companies are rarely incorporated nowadays but they may be necessary
- where the risk of insolvency is small; or
- the company is to operate in a field where limited liability is frowned upon; or
- secrecy in relation to financial affairs is important; or
- where it can be foreseen that reductions in capital may become desirable.
The current Companies Act, Cap 486, allows the incorporation of both public and private unlimited companies by virtue definition and also re-registration of an unlimited Company as a limited company.
The new Companies Act, No. 17 of 2015 retains this type of companies although with restrictions on the exemption to file annual returns with the Registrar. Further, only unlimited private companies may be formed under the new Act. There are procedures for conversion of a private limited company to an unlimited private company or vice versa and for conversion of a public company to an unlimited company.
Limited Companies
A limited company is a type of company which when set-up allows an entrepreneur to keep their own assets and finances separate from the business itself. This means that people who have invested in the business (the shareholders) are only responsible for any company debts up-to the amount that they have invested and no more. It is therefore a good way for a business to get investment without risk to a personal wealth. Companies may be limited by shares or guarantee.
A company is said to be limited by shares if the liability of its members is limited by the memorandum to the amount, if any, unpaid on the shares respectively held by them.
A company is said to be limited by guarantee if the liability of its members is limited by the memorandum to such amount as the members may respectively thereby undertake to contribute to the assets of the company in the event of its being wound up while one is a member, or within one year after one ceases to be a member, for payment of the debts and liabilities of the company contracted before he ceases to be a member, and of the costs, charges and expenses of winding up, and for adjustment of the rights of the contributories among themselves, such amount as may be required, not exceeding a specified amount.
Companies Limited by shares
Two categories of companies fall in this sub-part. These are Public companies limited by shares and the Private companies limited by shares. These categories of company are mostly formed in the current regime. The distinctive features are as shown in the table below:
Please note the distinctions are as provided in the current Companies Act, Cap 486 and in the new Companies Act, No. 17 of 2015 which is yet to become operational.
SALIENT FEATURES & DISTINCTIONS AS PER COMPANIES ACT, CAP 486
| ASPECT | PUBLIC COMPANIES | PRIVATE COMPANIES |
| Purpose: | Intended for business and public investment. | Intended for business, trading and other commercial purposes. Most suitable for families, friends and relatives. |
| Membership: | Minimum seven members with no maximum membership | Minimum two members and a maximum of fifty(50) excluding employees |
| Directorships: | At least two directors | At least one director |
| Transfer of shares: | The company may transfer or sell its shares to the members of the public | The company is restricted in the transfer of its shares and the shares are not freely transferable. |
| Financial privacy | They are strictly regulated hence the financial accounts are published and filed with the Registrar | There’s no requirement for publishing financial accounts of a private company |
| Capital | · No minimum authorized capital/ nominal capital prescribed.
· Enjoy increased ability to raise capital by listing its shares at a securities exchange and issuing debentures from the members of the public |
· No minimum authorized capital required.
· Restricted ability and means of raising capital and borrowing. |
| Company Secretary | Must have a Company Secretary duly appointed and practicing in accordance with the law. | Must have a Company Secretary duly appointed and practicing in accordance with the law. |
DISTINCTIONS & SALIENT FEATURES AS PER COMPANIES ACT, 2015
| ASPECT | PUBLIC COMPANIES | PRIVATE COMPANIES |
| Purpose: | Intended for business and public investment. | Intended for business, trading and other commercial purposes. Most suitable for families, friends and relatives. |
| Name: | If a Limited Company, the name must end with “Public Limited Company” or “plc” | If Limited, the name must end with “limited’ or “ltd” |
| Membership: | Any one or more persons may form a public company | Any one or more persons may form a private company up to a maximum of 50 members. |
| Directorships: | At least two directors( at least one Director must be a natural person) | At least one director |
| Minimum Capital | Authorised minimum capital of Kshs. 6, 750,000/= | No minimum capital requirement. |
| Allotment of shares | Cannot allot shares unless at least one-quarter of their nominal value and the whole of any premium has been paid up.
|
No restrictions on allotment of shares |
| Trading Certificate | Must be obtained before conducting business or exercising borrowing powers | Once the Certificate of Incorporation is issued, the company may commence business. |
| Transfer of shares: | The company may transfer or sell its shares to the members of the public | The company is restricted in the transfer of its shares and the shares are not freely transferable. |
| Financial privacy | They are strictly regulated hence the financial accounts and director reports are published and filed with the Registrar | Required to file financial statements (unless exempted) and director reports. |
| Capital | Minimum authorized capital | Restricted ability and means of raising capital and borrowing. |
| Company Secretary | Must have a company secretary | Does not have to appoint a secretary unless with paid up capital of at least Kshs. 5 million and above |
Companies Limited by Guarantee
A company may be limited by guarantee. Such a company is one whereby the company’s memorandum of association provides for liability on the part of its members to contribute a fixed sum of money towards its debts, should the company be wound up. This form of company is most useful where:
- incorporation is necessary or desirable;
- there is no immediate need for capital to carry out the objects of the company; and
- it is desired to limit the liability of the members.
Associations not for profit (for example, clubs, and associations of traders for trade protection or information) are most commonly incorporated as this type of company. It is also appropriate for professional, trade and research associations, and clubs supported by annual subscription. It may also be used for registration of charitable and not for profit organizations. Such a structure is particularly useful where it is desirable to avoid the need to transfer a share every time a member leaves or joins.
In the current legal regime, Companies Act Cap 486, one may establish either a Company limited by guarantee with or without shares. However, Companies Act, 2015 would only allow companies limited by guarantee without share capital to be established. However, the already incorporated
It should also be noted as an administrative practice, the Registrar of Companies does not incorporate companies which are limited by guarantee without prior clearance from NIS. The process for obtaining this clearance is time-consuming and uncertain, and as a result very few of such companies, if any at all, have been registered as such.
If you would like to register a limited liability company in Kenya or require company secretarial services in Kenya, please contact us on info@capitaregistrars.co.ke or by phone on +254709747555
Related
https://capitaregistrars.co.ke/procedure-for-the-registration-of-a-limited-company-in-kenya-2/
