Starting a Business in Kenya: A Comprehensive Guide for Entrepreneurs

Starting a Business in Kenya: A Comprehensive Guide for Entrepreneurs

Formal employment is becoming less popular due to its limited availability and rigid structure, which includes fixed timings, tight deadlines, and restricted income potential. As a result, many people, especially the youth, are turning to entrepreneurship. But how do you start a business in Kenya? While some may immediately think of obtaining a license from the city county council or paying taxes to the Kenya Revenue Authority, these steps come much later in the process.

The first step, obviously after getting the business idea, is to understand what type of business you would like to have. There are several types of entities which are commonly referred to as businesses, but for formal registration it is very crucial to understand the best type of ‘vehicle’, so to speak, to suit your desired plan. It could be a business name, a private limited company, a public limited company or a limited liability partnership.

A business name is the simplest of them. It is not really a legal entity. It just simply shows who owns the business and who would pay for its debts, if any. This is the best type of business for small-scale businesspersons. A private limited company is a legal entity in which the members can separate their assets and finances from the business itself. In the case of debt, for example, the company itself would be pursued without necessarily getting the members to pay from their personal finances. Most private limited companies are limited by shares. This implies that investors in this type of company are responsible for company debts in proportion to the shares that they invested in the company. On the other hand, a company could be limited by guarantee. Here, investors will only be liable to contribute the amount that they agree to give to pay for debts, in case the company needs to be wound up.

A public limited company is one which allows its members to transfer their shares, and allows invitations to the public to subscribe for shares in the company. It is mainly intended for business and public investment. A limited liability partnership is a type of business that combines the flexibility of a general partnership with the benefits of a limited company. In this regard, the partnership exists as an entity and individual partners are not liable for the actions of the other partners. Also individual partners are not personally liable in the event of debt. Partners can decide on how they will each contribute to the partnership, which is flexible.

Once the decision on the type of company is made, the next step is to register it. Without this registration, one cannot proceed to the other crucial elements like tax or even legally obtaining a working space. The registration is done on the eCitizen portal. The first step, regardless of the type of business, is the name search and reservation. Here, the most crucial details are the type of business and the name of the business. It is important to note the guidelines provided before the registration form, such as businesses with the word “Enterprises” cannot use initials in their name. The total cost for the search is Ksh 150, paid via mobile money.

After reservation, one can now register the entity. The registration of all business types is done online through the eCitizen portal, with the exception of limited liability partnerships, which is done manually at the Registrar of Companies. For the registration of a business name, the requirement is to fill in a BN2 form, which simply lists out the particulars of the business owner(s). A copy of the ID, passport photo(s) and KRA PIN(s) of the owner(s) will be required.

To register a private company limited by shares, one needs to fill out a CR1 form, which is the application for the registration of a limited company; a CR2, which is a model memorandum for a company limited by shares (one can choose to prepare their own articles of association); a CR8, which shows the residence of the director(s), and a statement of nominal capital. The first and last documents mentioned require to be stamped and the stamp duty is determined by the value of the nominal share. The requirements for registration are the name(s), address(es), passport photo(s), KRA PIN certificate(s) and a copy of the ID(s) of the directors/shareholders. The proposed physical address of the business is also required. These are also the requirements to register a company limited by guarantee, with the only difference being a CR3 form, which is a model memorandum for a company to be limited by guarantee, instead of a CR2.

To register a public limited company, you will need to fill out a CR1, a CR8 and a statement of nominal capital. Also a memorandum of the company and articles of association need to be drafted. The articles must contain provisions that allow members to transfer their shares to members of the public, and allows for invitations to members of the public to purchase shares. It must be noted that for this type of entity, there must be at least seven shareholders and three directors, and a company secretary. The names, addresses, passport photos, KRA PIN certificates and a copy of the IDs of the directors; the names of the shareholders; and the proposed physical address of the company are also required.

A limited liability partnership registration requires one to fill out a LLP1 form. For this entity, though, a memorandum is replaced by a limited liability partnership agreement, which sets out the agreement between the partners, including the roles, profit sharing and such other contributions. This is however not submitted during registration. A manager must be appointed and a letter showing consent to act as manager is required. The other requirements are the particulars of the partners and the manager, much like the other types of entities discussed above.

Upon submission, registration takes different lengths of time, depending on the type of business. This can range from an average of five days for a business name, to an average of a month for company registrations. After that, one can proceed to register with Kenya Revenue Authority, the city county council for licenses, National Social Security Fund and National Hospital Insurance Fund, where necessary.