KENYA LAWS ONLINE: Kenya Company Law

This section gives you details on Kenya Company law.Below are some topics and a comprehensive introduction to the Kenya Company Law.

Company law in Kenya: An introduction
Kenya company law is that body of rules which regulates corporations formed under the Kenya Companies Act.A company is a business organisation which earns income by the production or sale of goods or services. This entry also covers rules by which partnerships and trusts are governed in Kenya, together with (albeit in less detail) cooperatives and sole proprietorships.The most prominent kind of company, usually referred to as a "corporation", is a "juristic person", i.e. it has separate legal personality, and those who invest money into the business have limited liability for any losses the company makes, governed by corporate law. The largest companies in Kenya are usually publicly listed on stock exchanges around the world. Even single individuals, also known as sole traders may incorporate themselves and limit their liability in order to carry on a business.

The formation and winding up of a company in Kenya is governed by the Company’s Act Cap 486 of the Laws of Kenya. The company legislation in Kenya owes its origin to the English company law. The companies Act of Kenya which came into force on 1
st
January 1962 is based on English companies Act of 1948.This Act is still applicable together with later amendments. The Act provides a basic legal framework for the regulation of companies in Kenya. It makes provision for the legal incorporation of companies and lays down rules for their constitution, management and winding up.

A part from the companies Act, there is also case law which has been developed by the courts such doctrines of ultra vires. The case law and companies practice have developed so many rules which are useful for filling in the gaps which have not been provided by the companies Act.
Definition of a Company
A company can be defined as a group of persons associated together for the purpose of attaining a common objective, social or economic.

According to Lord Justice Lindley a company is “an association of many persons who contribute money or money’s worth to a common stock and employs it in some trade or business and who share the profit and loss there from. The common stock so contributed is denoted in money and is the capital of the company. The persons who contribute it or to whom it belongs are members. The proportion of capital to which each member is entitled is his share. The shares are always transferable although the right to transfer is often more or less restricted”

Justice Marshall defines a company as an artificial being, invisible, intangible,existing only in contemplation of the law. Being a mere creation of law, it possesses only the properties, which the charter of its creation confers upon it,either expressly or as incidental to its very existence.

According to Haney “a company is an incorporated association which is an artificial person created by law, having separate entity, with a perpetual succession and a common seal”.

Section 2 (1) of the Kenya company Act (cap 486) provides that “a company means a company formed and registered under this Act or an existing company”. Existing company only means a company formed and registered under any of there pealed ordinances. For the purposes of companies Act of Kenya the companies includes: -

a)A registered company under this Act.

b)An existing company.

c)An unregistered company covered under section 357-364.

d)A produce company covered under section 388.

e)A foreign company covered under section 365-381

The most common forms of companies in Kenya are:

a company limited by guarantee. Commonly used where companies are formed for non-commercial purposes, such as clubs or charities. The members guarantee the payment of certain (usually nominal) amounts if the company goes into insolvent liquidation, but otherwise they have no economic rights in relation to the company .
a company limited by guarantee with a share capital. A hybrid entity, usually used where the company is formed for non-commercial purposes, but the activities of the company are partly funded by investors who expect a return.
a company limited by shares. The most common form of company used for business ventures.
an unlimited company either with or without a share capital. This is a hybrid company, a company similar to its limited company (Ltd.) counterpart but where the members or shareholders do not benefit from limited liability should the company ever go into formal liquidation

Companies limited by shares A company under Kenya company law is limited by shares where the liability of a member to contribute to the company’s assets is limited to the amount, if any, unpaid on his shares.
Such companies must have a share capital. These types of companies are the most common and prevalent in Kenya. Companies limited by shares are commonly registered as ‘for profit’ organizations and are of two types-
Private limited Companies
A private company is defined in the Act (Section 30) as one which by its articles
(a) Restricts the right to transfer its shares; and
(b) Limits the number of its members to fifty, exclusive of persons in the employment of the company and of persons formerly in the company’s employment;
(c) Prohibits any invitation to the public to subscribe for any shares or debentures of the company, and certifies in its annual return that it has not issued any prospectus to the public to subscribe to its shares or debentures.
Further, a private company may be an ordinary private company or an exempt private company.
An exempt private company is a private company which satisfies the following conditions-

No body corporate holds any of its shares or debentures.
No person other than the holder has any interests in its shares or debentures.
The number of debenture holders does not exceed fifty.
No body corporate is a director.
No person other than the directors, members or debenture holders can determine the company’s policy.
The benefits of any private company are that it need only have two members and may have only one director (although it must have a secretary, and the sole director cannot be the secretary).
Further, a private company can commence business (and make binding contracts, and exercise its borrowing power, if any), immediately on incorporation. Another advantage is that a private company need not hold a statutory meeting or send a statutory report to its members Sec 130 (10).

Exempt private companies in addition enjoy certain other benefits such as with regard to reporting requirements and auditing requirements.
This type of company is preferred by most ‘for profit’ organizations as it has relatively easy procedures for registration under the Companies Act, and the requirements for reporting are easier and less stringent than for public companies.
Public limited companies
Public limited companies under Kenya company law are registered companies that have a minimum number of seven members. Most public companies are initially private companies that are subsequently converted to public companies when they invite members of the public to subscribe to their shares and debentures.
There is a requirement under the Companies Act that when the membership of a private company exceeds fifty, then it must convert to a public company.
Public companies are seldom used except in the case of companies quoted on the Nairobi Stock Exchange and for purposes related to the control of dealings in agricultural land. Even then, it is usual to incorporate as a private company and convert subsequently.

Charitable and other companies

Where it is proved to the satisfaction of the Attorney-General (through the objects clause of the memorandum of association) that an association about to be formed as a limited company is to be formed for promoting commerce, art, science, religion, charity or any other useful object, and intends to apply its profits, if any, or other income in promoting its objects, and to prohibit the payment of any dividend to its members, the Attorney-General may by licence direct that the association may be registered as a company with limited liability, without the addition of the ‘limited’ to its name, and the association may be registered accordingly and shall, on registration, enjoy all the privileges and (subject to the provisions of the Companies Act) be subject to all the obligations of limited companies (with regard to reporting requirements and audits).
This provision is only of importance in that it does away with the requirement for the name of the company to include the term “limited”. Other than this, it is of no actual relevant importance, as all other requirements of limited liability companies have to be complied with.
Whereas companies may be registered for non-profit objects, this is not a common occurrence in Kenya as the companies are nevertheless obliged to be run as other ‘for profit’ companies. They are required to file annual returns, required to have directors and a company secretary and are subject to taxes like any other ‘for profit’ company.

Companies limited by guarantee

Under the Kenya company law,a company limited by guarantee may be formed either with or without a share capital, but is usually formed without a share capital. Under Section 5 (3) of the Companies Act, the memorandum of a company limited by guarantee must state that each member undertakes to contribute a specified sum towards the assets of the company in the event of its being wound up while he is a member, or within one year after he ceases to be a member.
The amounts which the members have agreed to contribute in a winding up cannot be mortgaged or charged while the company is a going concern.
Every company limited by guarantee, whether it has a share capital or not, is obliged to register articles of association with the memorandum.
The memorandum or articles of a company limited by guarantee and not having a share capital cannot give any person a right to participate in the divisible profits of the company, except than as a member, and every provision in the memorandum or articles purporting to divide the undertaking of the company into shares or interests is treated as a provision for share capital, notwithstanding that the nominal amount or number of the shares is not specified.
If the company has a share capital, it must make an annual return like any other limited liability company. If it has no share capital, it must make an annual return stating (under Section 126 of the Companies Act)-

The address of the registered office.
If the register of members is not kept at the registered office, the address of the place where it is kept.
The particulars of the directors and the secretary, which are required to be kept in the register of directors and secretaries.
Particulars of the total amount of the company’s indebtedness in respect of all mortgages and charges required to be registered with the Registrar.

Such companies are usually formed to incorporate professional, trade and research associations, and clubs supported by annual subscription. They can also be utilized for registration of charitable and not for profit organizations.
As a matter of administrative practice, the Registrar of Companies will not incorporate companies which are limited by guarantee without prior clearance from Special Branch (a police department under the Office of the President). 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.

Companies with unlimited liability

Under the Kenya company law,a company may be registered as an unlimited liability company, in which case there is no limitation of the members’ liability for the debts of the company. Such companies are not often formed today. The company is obliged to register articles with the memorandum of association. The articles must state the number of members with which the company proposes to be registered and, if the company has a share capital, the amount of the share capital. The name will not, of course, include the word ‘limited’ and there will be no limitation of liability clause in the memorandum.
If the company has a share capital it must make an annual return like any other limited liability company. If the company has no share capital, it must make returns similar to that made by a company limited by guarantee that has no share capital (as had been earlier defined).

Representative Offices of foreign companies

A representative office is registered as a foreign company under Section 365 of the Companies Act. A certified true copy of the constitution of the company or a translation of the same (notarized if not from a commonwealth country), names of directors and their addresses are required for registration of the office.
There is also required the name and address of the person in Kenya who will accept service on behalf of the company. There is requirement for a form to be signed and filled in with the above details. There is no requirement for stamp duty, but filing and registration fees are payable.
After all these formalities are fulfilled, then one obtains a Certificate of Compliance with Sections 365 and 366 of the Companies Act. It takes three weeks or so to obtain such certificate. The representative office requires a trade license, an immigration certificate, but no other licenses other than these.
Representative offices can be used for non-profit purposes, as they are not liable to pay local taxes where there is no income generated by them as all contracts entered into by them may be deemed to be contracts of the parent company.

Societies

The law relating to societies in Kenya is contained in the Societies Act Cap 108 of the Laws of Kenya. A Society is defined to include any club, company, partnership or other association of ten or more persons, whatever its nature or object, established in Kenya or having its headquarters or chief place of business in Kenya, and any branch of a society, but does not include,

A company or a foreign company as defined under the Companies Act.
Any corporation incorporated by or under any other written law.
A registered trade union within the meaning of the Trade Unions, including a branch of a trade union registered under that Act.
A company, firm, association or partnership consisting of not more than twenty persons, formed and maintained with a view to carrying on business for profit.
A co-operative society registered as such under any written law.
A school registered under the Education Act, advisory council, Board of Governors, District Education Board, school committee or similar organization established under or in accordance with the provisions of any written law relating to education.
A building society as defined by the Building Societies Act.
A bank licensed under the Banking Act.
Any international organization of which Kenya is a member, or any branch, section or organ of any such organization.
Any combination or association which the Minister may, by order, declare not to be a society for the purposes of this Act.

The effect of the foregoing is that the type of organizations that may be registered as societies is severely limited by the Act. However, this is the primary method (other than as NGOs) by which charitable and not for profit organizations may be registered.
A society may be a registered society or an exempt society. Societies are exempt when they do not have to comply with certain requirements of societies such as rendering accounts and annual returns to the Registrar.
Applications for registration or for exemption from registration for societies are made to the Registrar of Societies together with a copy of the society’s constitution and rules.
The Registrar shall consider every application for registration of a society or for exemption from registration and shall communicate his decision thereon to the society within one hundred and twenty days of receipt of the application.
Upon registering a society or exempting it from registration, the Registrar shall issue to the society a certificate of registration or exemption from registration in the prescribed form.
The Registrar of Societies is given a wide and unfettered discretion in registering or refusing registration to organizations, although a society aggrieved by the decision of the Registrar may appeal first to the Minister and thereafter to the High Court
In Kenya, the type of organizations that are registered as societies include political parties, self-help groups, neighborhood associations and a wide variety of charitable associations. Registration is often easily granted to most such organizations, except for political parties, which are thoroughly scrutinized and vetted before they are registered or refused registration.
Community Based Organizations (CBOs)
Community based organizations are administered in Kenya by the Department of Social Services under the Ministry of Culture and Social Services.
The civic organizations ordinarily registered under this option consist of community groups operating in fairly limited administrative areas such as locations and divisions within the district.
The majority of such organizations are self-help groups that are involved in commercial or developmental activities for the benefit of a community in a geographical area.
Such organizations operate in a relatively ad-hoc manner and do not have a constitution or any rules that govern them.
enewal of the registration is required to be made annually, although the District Social Development office rarely enforces this requirement.
Whereas CBOs are not registered as societies under the Societies Act, where the activities of a particular CBO is deemed by the Registrar of Societies to be of a nature requiring that it be registered as a society, then he may, by notice, require that the CBO concerned apply for registration as a society under the Act.

Trusts

Incorporation of trustees is provided for in Kenya by The Trustees (Perpetual Succession) Act Cap 164 of the Laws of Kenya. Section 3 (1) of the Trustees Act states that Trustees who have been appointed by any body or association of persons established for any religious, educational, literary, scientific, social, athletic or charitable purpose, or who have constituted themselves for any such purpose, may apply to the Minister (in this case, the Attorney General) in the manner provided in this Act for a certificate of incorporation of the trustees as a body corporate. The trustees are required to furnish-

The objects and constitution of the trust concerned, together with the date of, and parties to, every deed, will or other instrument, if any, creating constituting or regulating it.
A statement and short description of the property or interest therein which at the date of the application is held or intended to be held by the trustees.
A statement as to whether the trust concerned is a society registered or exempted from registration under the Societies Act, or is incorporated under the Companies Act, together with the relevant certificate of registration, exemption or incorporation.
The names and addresses of the trustees.
The proposed title of the corporate body, of which title the words ‘trustees’ and ‘registered’ shall form part.
The proposed device of the common seal and the regulations for the custody and use of the common seal.If the Attorney General, having regard to the extent, nature and objects and other circumstances of the trust concerned, considers incorporation expedient, he may grant a certificate accordingly, subject to such conditions or directions generally as he thinks fit to insert in the certificate, and particularly relating to the qualifications and number of the trustees, their tenure and avoidance of office, the mode of appointing new trustees, the custody and use of the common seal, the amount of movable or immovable property which the trustees may hold, and the purposes for which that property may be applied.The trustees shall thereupon become a body corporate by the name described in the certificate, and shall have perpetual succession and a common seal, and power to sue and be sued in their corporate name and, subject to the conditions and directions contained in the certificate, to hold and acquire, and by instruments under the common seal to convey, transfer, assign charge and demise any movable or immovable property or any interest therein then or thereafter belonging to, or held for the benefit of, the trust concerned in the same manner and subject to such restrictions and provisions as trustees might so do without incorporation. The property of the trust shall then vest in the Trustees as a body corporate.
The body corporate shall then be administered according to the objects and constitution (the trust deed) of the particular trust concerned that were furnished to the Attorney General prior to the incorporation of the trust.
Thus, one or more trustees may be incorporated to represent a non-profit organization, and there is no requirement for a minimum number of members of the organization.
There is no requirement of capital or minimum capital for the organization. The procedure for incorporation is well laid out, and in Kenya, once the Attorney General’s consent has been obtained, incorporation of the trust can usually be accomplished within a relatively short period of time.

Trade Unions

Trade Unions in Kenya are regulated under the Trade Unions Act Cap 233 of the Laws of Kenya. A trade union is defined as
(a) An association or combination, whether temporary or permanent, of more than six persons (other than a staff association, employees’ association, or employees’ organization not deemed to be a trade union), the principal objects of which are under its constitution the regulation of the relations between employees and employers, or between employees and employees, or between employers and employers, whether such combination would or would not have been deemed to have been an unlawful combination by reason of some or more of its purposes being in restraint of trade.
(b) An association or combination of trade unions.
Trade Unions in Kenya are required to be registered under the Act to acquire juridical capacity.
All such applications for registration are to be made to the Registrar of Trade Unions in the forms prescribed under the Act, and shall be signed by at least seven members of the union.
No trade union shall perform any act in furtherance of the purposes for which it has been formed unless application has been made by that union for registration.
If any trade union does not apply for registration then the trade union shall not enjoy any of the rights, immunities or privileges of a registered or probationary trade union but shall be subject to any liabilities incurred by the trade union and shall be dissolved as from the date required by any notice in writing from the Registrar requiring such dissolution.
Registered trade unions acquire juridical capacity and immunity from civil suits in respect of any act done in contemplation or furtherance of a trade dispute to which a member of the trade union is a party on the ground only that the act induces some other person to break a contract of employment, or that it is in interference with the trade, business or employment of some other person or with the right of some other person to dispose of his capital or of his labour as he wills.
Further, a suit against a registered trade union or against any member or officer thereof on behalf of themselves and all other members of the trade union in respect of any tortious act alleged to have been committed by or on behalf of the trade union shall not be entertained by any court.
As such, trade unions may be registered as not for profit organizations to be engaged in the regulation of the relations between employers and employees.

Characteristics of a company
Separateness

Under the Kenya company law,a company is separate from its employees, in that the connection between them is, usually, a mere contract of employment, which may be terminated, leaving both parties to go their own ways. The same generally applies, however, to those businesses which are not companies. There is also, more importantly, usually a separation between the company and its owners.

The locus classicus for the principle that a company is a separate entity from its directors and shareholders is the landmark English case of Salomon v Salomon. Shareholders are the owners of one or more units of equal value into which the company is divided and which are usually sold in order to raise capital, either for the company itself or for its founders. A share carries with it a defined set of rights and duties: most notably the right to receive a share of the company's profits and the right to receive a share of the company's assets if the company is wound up.

The separation between the shareholder and the company under the Kenya company law has one other important consequence. If a company is wound up, its shareholders will lose their stake, but their separateness from the company will prevent its creditors from pursuing them for fulfilment of the its debts. If, on the other hand, an unincorporated business should go bankrupt, its owners, who do not enjoy such separation, will be liable for its debts.

Because a company under the Kenya Company law can do certain things—it can acquire rights and duties and assets and liabilities—albeit only through the actions of human beings who are authorised to act on its behalf, the company is itself regarded as a juristic person. It has rights and duties, but not the body, of a natural person.

Immortality

Another consequence of the separation between the company and the individual shareholders is that, unlike an unincorporated business, companies do not die with their owners. This does not mean that companies go on always and forever. They can "die," too, through takeovers, mergers or bankruptcy, or when their owners decide to close them down.

Size

Companies range from the very small to the very large. There are no very large businesses which are not companies.Part of what allows companies to become so much bigger than other businesses is their ability to raise capital more easily (which is in turn connected to their separation from their owners and their immortality), and the fact of their being better regulated than other businesses, which gives confidence to investors.

Shareholders

It is important at the outset to appreciate what, exactly, is meant by "holding a share in a company." The fact that a person is a shareholder of Pick 'n Pay does not entitle him to go along to one of its branches and leave it with an unpaid-for basket of groceries in his possession. His share in Pick 'n Pay does not take the form of its stock.

Shareholders are the owners of one or more units of equal value into which the company is divided and which, usually, have been sold in order to raise money either for the company itself or for its founders.