Setting up a company in Kenya
When setting up a company you may want to consider these factors:
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Business Factors
Generally, Kenya requires that foreigners wanting to own, or run a business in Kenya to obtain a work permit from the Ministry of Immigration. The type of permit applied for will depend on whether the foreigner will be an owner of the business or simply an employee (to be elaborated further below).
In deciding on whether to invest in Kenya, you may also want to consider the following when making your decision :-
- The industry and type of business that will be conducted
- Nationality of the headquarters / individuals (s)
- Presence of existing trade agreements or relationships
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Location
Location will be another factor. Separate cities and regions may have different rules, costs and availability. It is always recommended to seek advice from relevant professionals, such as business or legal advisors, accountants and others depending on your needs.
Your Options
There are three types of business forms available to foreign companies in Kenya. Each of these business forms has distinct advantages and disadvantages, as well as differing scope of business activities, registration requirements and minimum capital requirements. In most cases it will depend on the degree of commitment a company has to Kenya and the planned business activity.
When setting up a company in Kenya, you have the following options:-
- Corporation
- Branch Office
- Representative Office
This article provides a general guideline for foreign businesses on entering Kenya for business purposes. In particular, it looks at common pathways to establishing a business presence in Kenya, generally through a corporation, branch office or liaison office. In addition, various economic, tax and regulatory factors are provided throughout as a source of useful information to assist those who will enter the Kenyan economy. The guide also looks at some immigration requirements such as obtaining appropriate visa status.
Data is based on the time of writing, November 2015 or closest available dates.
Corporation
Besides requiring foreign applicants to hold a valid work permit before being appointed as shareholders in Kenyan companies, Kenya also has certain foreign ownership rules in place. For example, telecommunications companies must have a minimum of 30% shareholding by Kenyans.
In Kenya, there are two main types of corporations (registered companies) that can be set up:
- Private limited corporation
- Public limited corporation
Types of corporations
To register a limited liability company (LLC) in Kenya you will need:
- two shareholders
- two directors
- A registered office within the republic of Kenya (both physical and postal address).
A foreigner is not required to have a work permit before registering the company, rather when applying for a class H work permits, it is a prerequisite that the company first be in existence.
1. Private limited corporation
Investment Capital Requirements
There are no minimum or maximum share capital requirements. However, there are certain industries which have minimum limits of nominal capital (regardless of whether it is owned by locals or foreigners) e.g. banking, insurance, foreign exchange and security firms.
A private limited liability company is only permitted to have a maximum of 50 members (excluding those under the company’s employment). One requirement under the Companies Act that when the membership of a private company exceeds fifty, it must convert to a public company.The right to transfer shares is restricted and shares or debentures cannot be subscribed to the public.
2. Public limited corporations
Alternatively, investors may set up a public limited corporation. Companies wishing to list on the Nairobi Stock Exchange are required to set up a public limited corporation.
Investment Capital Requirements
A public limited liability company has no maximum number of members. Shares may be transferred and shares and debentures may be offered to the public.
Incorporation process
Step 1: Reservation and approval of name by the Registrar of Companies
The company name reservation period lasts 30 days, and can also be renewed for a similar period.
Agency: Registrar of Companies
Time: 1 day
Cost: KES 100 per name reservation
Step 2: Preparation and stamping of the Memorandum, Articles of Association and Statement of Nominal Capital
The documents will be assessed by the Stamp Duty Office, before payment can be made at the Kenyan Revenue Authority (KRA)-designated banks. Payment of the relevant duty includes fees for bank handling charges.
Agency: Registrar of Companies, Kenyan Revenue Authority
Time: 5 – 10 days
Cost: KES 2,000 in stamping fees for three copies of the Memorandum and Articles of Association and two copies of the Statement of Nominal Capital, 1% of nominal capital (KES 20 for every KES 2,000 or part thereof of capital) and KES 100 in bank handling charges.
Step 3: Signing of the Declaration of Compliance
In accordance with the Companies Act (Cap. 486), an advocate engaged in the formation of the company or a director or company secretary named in the articles of association must sign the declaration of compliance (Form 208). This form is submitted to the Registrar of Companies along with the registration documents.
Step 4: Completion and filing of the relevant forms
In addition to the Statement of Nominal Capital, companies are also required to complete the following forms: Particulars of Directors and Shareholders, Situation of Registered Office and Certificate of a Lawyer involved in the Formation of the Company. A public company is also required to complete Consent to Act as Directors, List of Persons who have Consented to Act as Directors and the Statement in Lieu of Prospectus forms. A complete list of the forms can be viewed here.
Once completed, the founder must submit the incorporation deed and the following documents to the Registrar of Companies:
- Stamped memorandum and articles of association
- Statement of capital
- Notice of Situation of Registered Office (Form 201)
- Particulars of Directors and Secretary (Form 203)
- Declaration of compliance with the Companies Act (Form 208)
- Copy of the company name approval
Once successful, the company will be issued with a Certificate of Incorporation. In addition to the Certificate of Incorporation, public companies will also be issued with a Trading Certificate.
Agency: Registrar of Companies at the Attorney General’s Chambers in Nairobi
Time: 12 days
Cost: Approximately KES 7,360.
Note: Fee schedule for registration under the Companies Act (Cap. 486):
- For the first KES 100,000: KES 2,200
- For every KES 20,000 after the first KES 100,000 or part thereof: KES 120, subject to a maximum of KES 60,000
- Filing fee for three forms: KES 600 (KES 200 each)
Step 5: Registration for taxes with the Kenya Revenue Authority (KRA)
Companies will require the personal tax identification number (PIN) of at least 2 signatories (2 directors or 2 shareholders or a director and the secretary) as well as the company tax identification number to register for VAT, local service tax, and the Pay-As-You-Earn (PAYE) tax. PIN and tax registrations can now be done online.
The founder will also be required to file the certificate of incorporation and a copy of the memorandum and articles of association during the online tax registration.
In the event the KRA has not received confirmation of the company’s incorporation from the Companies Registry, the founder must also submit the certificate of incorporation and receive log-in details to proceed with online tax registration.
Agency: KRA
Time: 1 day
Cost: No charge
Step 6: Application for a business permit
Companies are also required to apply for a business permit from the Nairobi City Council. The following fee scale is applicable for business permit fees:
1. Large trader, shop, or retail service with 21-50 employees and premises of 300-3,000 square meters (or at a prime location): KES 30,000
2. Medium trader, shop, or retail service with 5-20 employees and premises of 50-3,000 square meters (fair location): KES 15,000
Agency: Nairobi City Council
Time: 5 days
Cost: Depends on the type of permit
Step 7: Registration with the social security services
Companies are also required to register with the National Social Security Fund (NSFF) and the National Health Insurance Fund (NHIF).
Agency: NSFF and NHIF
Time: 1 day
Cost: No charge
Step 8: Making a company seal
Agency: Seal makers
Time: 2 days
Cost: Between KES 2,500 to 3,500
Branch office
Foreign corporations operating in Kenya can operate as a branch office without the need to incorporate. However, it is generally advisable to incorporate rather than set up a branch office in Kenya, given the numerous drawbacks associated with having a branch office. Having said that, foreign enterprises wanting to set up a branch in Kenya for lower levels of activity are allowed to do so.
When registering a branch, the following documents and details must be submitted to the Registrar of Companies within 30 days of the branch’s establishment:
- A certified copy of the Charter, Statutes or Memorandum and Articles of the company, or other instruments defining the constitution of the company;
- A list of the directors and the secretary of the company;
- A statement of all existing charges entered into by the company affecting properties in Kenya;
- Names and postal addresses of one or more persons resident in Kenya authorised to accept, on behalf of the company, service of notices required to be served on the company;
- Full address of the registered or principal office of the company in its home country; and
- Full address of place of business in Kenya.
Once the process is complete, the Registrar will issue a Certificate of Compliance.
Agency: Registrar of Companies
Time: Up to 4 weeks
Cost: KES 8,600
Representative Office
A representative office is not an independent legal entity and hence, may not conduct direct commercial or revenue-generating activities with the execution of contracts, receipt of funds, sale or purchase of goods, or provision of services. Its permitted activities are usually limited to activities designed to promote business interest of institutions licensed and incorporated outside Kenya.
The same registration procedure for branches is applicable for representative offices. The relevant forms and more information about the application procedure may be found here.
Outsourcing Employment Through a GEO Employer of Record Service
Whether to incorporate in Kenya, and what sort of entity to setup are just two of the many choices companies must make when expanding into a new market.
If the company intends to have staff in Kenya, they must also decide whether they will administer that employment internally or use a Global Employment Organisation to handle payroll and employment responsibilities. A GEO Employer of Record solution is an attractive alternative where
- the company is looking to setup an office quickly
- the company wants to work within a defined budget
- the company wants to limit its initial commitment in Kenya
- the company needs help with tax, employment, immigration and payroll compliance in Kenya
The complexity of employment regulations in Kenya makes the use of a GEO advisable coupled with local legal counsel to ensure full compliance with employment laws, for example the drafting of local contracts for workers.
Shield GEO provides a comprehensive service in Kenya allowing companies to deploy their staff quickly with reasonable, clearly stated costs and timeframes. The company contracts directly with Shield to employ and payroll their staff on their behalf in Kenya.
Shield GEO then becomes the Employer of Record. Shield GEO assumes the legal responsibility for these employees, sponsoring them on work permits, complying with local employment law and running their monthly payroll. Using Shield GEO is the fastest and most cost effective way to deploy local and foreign workers into Kenya. Read more about outsourced employment through Shield GEO.
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