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Tuesday, November 16, 2010

Establishment of Business in Kenya by a foreign company or corporation

If a foreign incorporated company or corporation intends to establish presence in Kenya, there are two options that are available. It can be incorporated in Kenya as;

(a) a locally incorporated private company; or
(b) registered as a branch office of a foreign company.

(a) Locally incorporated private company
Incorporation of a company in Kenya is relatively straight-forward in most cases. Companies are usually incorporated as private companies limited by shares. A private company is a company which restricts the right to transfer its shares, limits the number of shareholders to 50 (excluding employees), prohibits offers to the public of its shares and debentures and cannot issue bearer shares. A private company must have a minimum of 2 shareholders.
Private companies enjoy a number of privileges including an exemption from the requirement to file annual accounts at the Companies Registry.
A summary of the information required for the purposes of incorporation and the costs involved are set out below;
1. An application is made to reserve the proposed name with the Registrar. The Registrar has the right to reject names he considers undesirable or which are similar to the names of existing companies. It is therefore advisable to apply for 2 or 3 alternative names. The name must include the word “Limited” unless special dispensation is obtained (essentially confined to charitable bodies).
2. Preparation of the Memorandum and Articles of Association of the company.
Unless special minority protection is required, these will be very much in standard form. The Memorandum sets out the objects of the company in detail and particulars of its authorised share capital. It is necessary to set out all the anticipated activities of the company as part of its main objects of association. We will therefore need a reasonably comprehensive description of the company’s proposed business. This need not extend to normal ancillary powers (e.g. borrowing powers) which we will include as a matter of course.
It is usual to incorporate the company with a nominal amount of authorised share capital (Shs.2,000) which can be increased at a later date. Stamp duty of 1% is payable on authorised share capital. Although the obligation to pay for shares can be expressed in any currency, the actual share capital of the company is invariably designated in Kenya Shillings.
The Articles will contain the regulations for conducting the company’s affairs. It will be necessary to consider various matters including: whether the issue and transfer of shares are to be subject to pre-emption rights, the size of the board of directors, the quorum for meetings of shareholders and directors, whether the directors are subject to retirement by rotation, any special rights conferred on shareholders to appoint directors etc. In the case of a wholly-owned subsidiary, most of these will be designed for ease of administration. .
3. The Memorandum and Articles must be signed by at least 2 persons who will subscribe for at least one share each. In most cases, the initial subscription is done by 2 partners of Sichangi Partners Advocates in order to quicken the process. The shares subscribed will be held in trust for the intended shareholders whose names and addresses will be required for the purposes of preparing the necessary declarations of trust. The shares can then be transferred after incorporation. Stamp duty of Shs.200 (approximately US$3) are payable on the declarations of trust and subsequent share transfers.
4. The Memorandum and Articles and a Statement of the Nominal Capital are then lodged for stamping. Due to past frauds, there are now extensive audit procedures in place at the stamp duty office as a result of which two (2) working weeks must be allowed for stamping.
5. After stamping, the documents are presented to the Registrar of Companies together with the following prescribed forms:
(a) Particulars of the registered office. The full physical and postal address of the registered office must be supplied. This includes the land reference number.
(b) Particulars of the directors and company secretary including their full names, usual postal address, nationality and business occupation. It is usual to have a minimum of 2 directors. There are no unusual restrictions as to who may be appointed a director. In particular, there is no requirement that a director be a resident or citizen of Kenya. Companies may also act as directors.
(c) A Declaration of Compliance by the advocate attending to the incorporation of the company.
6. Incorporation is complete when the Registrar issues a Certificate of Incorporation which must be displayed at the registered office.
Common seal
The company will require a common seal for executing certain types of documents (e.g. office leases). Common seals are manufactured locally at a cost of approximately Shs.2,300 (US$30) and we should be pleased to make the necessary arrangements.
Licences and other registrations
Most companies will require some form of government or local authority licence before commencing business depending upon the nature of the business. We should be pleased to provide specific advice on the licences which may be required. There will also be a number of tax registrations which must be attended to including:
• the obtaining of a PIN number
• various employee related tax registrations (Pay As You Earn, National Social Security Fund, National Hospital Insurance Fund and Local Authority Service Charge)
• value added tax (where appropriate)

(b) Registration as a branch of a foreign Company
The above company may also establish liaison or branch office .In that case, it will have to register itself as a foreign company under Section 366 of our Companies Act. The documents required to be filed at the company’s registry to enable us to complete the necessary returns and file them at the companies Registry with all other necessary documents are:

a) A certified true copy of the Memorandum and Articles of Association of the company certified as a true copy by a notary public and notarised true copy of Certificate of Incorporation.

b) The present physical and postal address of the company. We will type this information into the necessary return once you provide us with this information.

c) The full names, addresses, nationalities and occupations of each of the directors and the company secretary. We will type this information into the necessary return once you provide this information.

d) The full name and physical and postal address of someone in Kenya who is appointed as the representative to accept service of papers on behalf of the company in Kenya. If you wish one of our partners can be named initially but you will subsequently have to appoint the representative who is sent to Kenya to run the office or a firm of accountants for this purpose. The accountants will also have to file the necessary tax returns for the company with the tax authorities (see below).

1. Procedure and time scale

The returns containing the information referred to in (b) to (d) above have to be signed by the person referred to in (d) above. Once this is done and we have been provided with the notarised copies of the documents referred in (a) we can lodge the application at the Companies Registry to register the company. It generally takes about 2 to 3 4 weeks from the date of filing such papers for the Registry to issue the Certificate of Compliance which signifies the registration of the company.

4. Various other requirements

Any expatriates who are to operate the company’s branch office in Kenya will need class A entry permits under the provisions of the Immigration Act before they can start to operate the Nairobi Office and they will in due course have to obtain PIN numbers for tax purposes.

The company will have to make PAYE deductions and certain other statutory deductions from the monthly salaries of employees in the Nairobi Office and file certain statutory returns in connection with such deductions from time to time. A local firm of accountants can advise you on these requirements once the company is registered.

The company will only have to pay Kenya corporation tax on any income which it derives from its activities in Kenya. Tax is not charged on funds sent into Kenya to finance the operation of such liaison offices.

Provided that the liaison office does not import, export retail or wholesale goods or services it will not require a trade licence under the Trade Licensing Act if it does this then it will have to obtain a trade license. No other licences, authorities or consents are presently required under the laws of Kenya to operate a liaison or branch office of a foreign company.

5. Opening of a bank account

A local bank will require a certified true copy of the Certificate of Compliance when the bank account is to be opened in the name of the foreign company. The account can be a foreign currency account into and out of which foreign currency can be freely remitted for the company’s expenses whenever they are incurred. The Certificate of Compliance will be issued by the Companies Registry on registration of the company and we can certify as many photocopies as you wish as true copies

If you require more information on this, please do not hesitate to contact me via mainacy@gmail.com

1 comment:

Sarah said...

You have not indicated whether there is capital restrictions on foreign companies wishing to establish business in Kenya. Also does the fact that the foreign company is owned by Kenyans act in my favour as a Kenyan?