Types of Companies in Kenya
Types of Companies in Kenya – A company is defined as a legal and separate entity that is formed by either a single person or a group of individuals that want to engage in and operate a business whether in a commercial capacity or an industrial enterprise.
The constitution of Kenya provides 2 major types of companies in Kenya.
- Statutory Companies
These types of companies are incorporated by a special act of parliament and the initial capital is provided for by the treasury. The company has no shareholders but can make profits and operate under stated commercial laws. When it accrues losses, the government can come to its rescue and the creditors cannot make an application to the court for the company to be dissolved. Examples of such companies in Kenya are the Kenya Power Limited Company (KPLC), Kengen and the Kenya Tea Development Agencies (KTDA).
2. Registered Companies
These are companies that are registered under the companies act. This is where the mass of all the Kenyan companies fall under.
Registered companies can be classified into two sets: Unlimited companies and limited companies.
- Unlimited companies
In this type of company set up, there are no limitations on the liability of the members to pay the debts which means that they are jointly and personally liable for the debts in case of a winding-up scenario. If the company needs more money to pay its debts or liabilities on winding up, it can call on the shareholders to contribute whatever amount is necessary to make up for the shortfall.
Here are the instances where this kind of company is necessary;
- Where the risk of insolvency is small.
- Where the owners do not wish to publicly file financial information and are keen on secretion in relation to financial matters.
- The company will operate in a field where limited liability is frowned upon.
- Where it can be seen that reductions in the capital may become desirable.
2. Limited companies
The owners or shareholders keep their own assets and finances separate from the entity. The liability of the shareholders is limited to the extent of the amount of capital they had originally invested or guaranteed in the company as per the memorandum of association which means that they are only liable up to the amount they invested and no more.
This is a very suitable arrangement as one can get involved without risk to personal wealth.
They can either be limited by shares or by guarantee
- Limited by Guarantee
If the company is being wounded up, the Memorandum of association provides for the liability on the part of its members to contribute a fixed sum towards its debts. The shareholders put up a guarantee to pay an amount so as to pay up the debt.
The following are instances where one should register it as a company limited by guarantee.
- When there is no immediate need for capital.
- If you are looking to avoid the need of having to transfer shares every time a member leaves or joins.
- When you want to limit the liability of the members.
- Incorporation is necessary or desirable.
2. Limited by shares
The liability of its members is limited by the memorandum to the amount if any, unpaid on the shares respectively held by them.
This category can be further classified into Sole proprietorship, Partnerships, and limited liability companies.
- Sole Proprietorship
This type of business is known for its simplicity and ease of setup. It is the easiest form in which one can operate. The owner and the business are regarded as one and therefore the owner assumes all the risks of the business and is personally liable to the extent of all his or her assets that are used in the business and those that are not.
Types of Partnerships are normal partnerships, limited partnerships, and limited liability partnerships.
- General/Normal Partnerships
Two or more people come together to form an organization with the purpose of carrying on a business. Partner contribute their share which can be in the form of their expertise, money and or property, etc. They are liable for any/all debts taken on by the business or by the other partners and share in all the affairs ie assets, profits and liabilities.
- Limited Partnerships
This type of company has both a general partner and a limited partner. The general partner is responsible for the day to day management of the business and does not have limited liability because they are active in the decision-making while a limited partner who acts as an investor as his only role is to provide capital and receive the share of the profits is liable up to the amount he invested within the business.
- Limited Liability Partnerships.
This type shields the other partners from negligent actions of the other partners making every partner individually liable for their actions or their inactions. They combine the elements of a company with those of a partnership and can only be created by certain types of professionals like law firms, accountants, etc.
Once an LLP is registered, it becomes a corporate, legal, entity separate from its members and may own property in its own name. It is not subjected to corporate tax rather it’s taxed on the income of the individual partners.
3. Limited Liability private companies.
They are separate and distinct entities from their owners and are registered for tax as a separate entity. It has its own rights, obligations and a life separate from its owners. It requires a minimum of at least one director and a maximum of 50 members.
4. Limited Liability public company
The public can buy and sell shares in the company. The company shares can be traded at the Over The Counter (OTC) market and the Nairobi Securities Stock Exchange.
In the OTC market, the company is the one that controls the market and offers specific shares for trading to specific persons who in most cases are the shareholders of the company. An example of a company that trades in the OTC market is Family Bank.
It requires a minimum of 7 shareholders and 2 directors and has no maximum limit.
The company will have to publish and file its audited financial statement and statutory reports with the Registrar of companies.
It is allowed to only start its operations only when they are granted a certificate of commencement of business.
We hope that article helped you understand the different Types of companies in Kenya. Feel free to Contact Us Today for any clarification