The new Companies Act The Insolvency Act, 2015

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INCORPORATING A PRIVATE COMPANY LIMITED BY SHARES IN KENYA UNDER THE COMPANIES ACT (ACT NO. 3) 2015

11th September 2015 must have been an exciting day for the corporate world as it is the day our  President assented to the Companies Act, 2015 which repeals the 1948 Companies Act                           (Cap 486)

The new Companies Act, 2015 and the Insolvency Act, 2015 represent a transition to modern company and insolvency laws, which has been long overdue.

The New Companies Act inter alia takes cognizance of the role that technology plays in the society. It also introduces legal and commercial concepts that were previously not permitted or governed by the 1948 Companies Act. Fines and penalties have also been revised upwards to reflect prevailing economic conditions.

The New Act has drawn heavily on the Companies Act, 2006 of the United Kingdom. At 1,026 sections running to over 1,600 pages (without schedules) the New Act is by far the most extensive piece of legislation on the statute books in Kenya.

The Companies Act, 2015 has brought with it many changes and one of those changes is the incorporation of a private limited company.

This Article seeks to set out the process of incorporation of a private limited company as envisaged in the new Companies Act, 2015.

The General Checklist for Incorporation of a Private Company Limited by Shares

  1. Name – A name for the Company will first need to be secured. It is best to indicate a minimum of three possible names for the company and list them in order of priority. This is to ensure that if one of the names is already reserved, you can use another name that you have listed. These names are submitted to the Registrar of Companies in the prescribed manner vide Form CR14 together with a prescribed fee of Kshs. 100 for each name and are usually reserved for a 30 day period renewable only once.
  1. Application to Register Company Limited by Shares (Form CR 1) – This was not provided for in the old Act.

It contains the proposed company name, the registered office, liability of members              (whether limited by shares or guarantee), the nature of the company (whether public or private) and the name and address of the agent used to make the application (if any).

  1. Memorandum and Articles of Association (Form 2) – The Memorandum and Articles of Association basically form the constitution of the company.

Under the previous regime, a company had to draft the Memorandum and Articles of Association. However, the new Act provides a standard Memorandum and Articles of Association which a company is required to adopt.

  1. Directors- Private Companies normally have two (2) directors but strictly speaking, you can form a company with only one (1) director. The following information in respect of each of the proposed director will be required:
  • Full name
  • Colored passport photo;
  • Postal address;
  • Residential address;
  • Email address;
  • Telephone number;
  • Occupation;
  • Nationality; and
  • PIN Numbers – (for purposes of stamp duty).
  1. Nominal (Authorised) Share Capital – Standard Memorandum and Articles of Association provide for a Nominal Share Capital of Kshs. 100,000 divided into 1,000 ordinary shares of Kshs. 100 each. The higher the nominal share capital at incorporation, the higher are the company formation expenses payable at the Companies Registry. After a company is formed, the share capital can be increased by filing certain forms at the Companies Registry.
  1. Shareholders – Under the old Companies Act, it was mandatory for a company to have a minimum of two (2) shareholders. However, under the new Act, with one (1) shareholder a company can be incorporated. The following details of shareholders are required:
  • Full name;  and
  • Postal address

The amount of shares each shareholder will hold will need to be highlighted in the Memorandum and Articles of Association. Generally, most parties issue one share to each shareholder (subscriber shareholders) and after the company is incorporated, the company is at liberty to play around with the shareholding depending on the internal factors specific to each company.

It is noteworthy that all the shareholders and directors of a company may be foreigners. However, the implication of this is that such company cannot own freehold land in Kenya. Article 65(3) the constitution provides that:

  • a body corporate shall be regarded as a citizen only if the body corporate is wholly owned by one or more citizens; and
  • property held in trust shall be regarded as being held by a citizen only if all the beneficial interest of the trust is held by people who are citizens.

In effect, companies whose shares are not wholly owned by Kenyan citizens can at any given time only hold leasehold titles for a maximum duration of 99 years. Such companies are by law not entitled to hold freehold land.

  1. Company Secretary – A company that has a share capital of less than Kshs.5,000,000/= need not to have a Company Secretary.

This is quite distinct from the old Act which made it mandatory requirement to have a qualified Certified Public Secretary (CPS) at the time of incorporation.

One of the principal roles of a company secretary is to maintain the company’s secretarial records and to prepare and file an Annual Return at the Companies Registry in each year.

  1. Registered Office – This does not have to be an address from which the company carries on business but is merely a legal address to which notices to the company can be sent. At times, the company’s registered office is care of the company secretary.
  1. Auditors – Every Company requires an Auditor; their function is to vet the books of account and ensure that the books of account comply with the international financial reporting standards. The auditor also makes reports during general meetings to members on the accounts examined by the auditor and every balance sheet and every profit and loss account and all group accounts laid before the company in the general meetings.

Timelines

The process of incorporation usually takes approximately 2-3 weeks and upon successful registration a Certificate of Incorporation is issued by the Companies Registry which is located at Sheria House, along Harambee Avenue, Opposite Parliament Buildings.

Post Incorporation Requirements

The registered company will be required to apply for PIN and VAT registration. In addition, in Kenya, companies usually execute documents under seal in the presence of (usually) two directors, and therefore, a seal will also need to be procured.

If you wish to incorporate a company in Kenya with ease, please do not hesitate to contact me.

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