Defining a private limited company (PLC) in Kenya

A Private Limited Company in Kenya is a business entity that is privately owned and has its shares divided among a limited number of shareholders. The ownership of the company is not available to the public and its shares are not traded stock exchange. Private limited companies are separate from their owners.The company is liable to its debts and shareholders’ liability is limited to the amount they invested in the company.In conclusion,a private limited company (PLC) is a small business entity that is privately held, with a limited number of shareholders and shares that are not publicly traded.

In Kenya, a Private Limited Company (PLC) is governed by the Companies Act, and it must be registered with the Registrar of Companies at the Business Registration Service (BRS).

Requirements for Registering a Private Limited Company in Kenya

To proceed with the registration of a PLC in Kenya, certain criteria must be satisfied:

1. At least one director: The company must have at least one director of 18 years of age or older.
2. A minimum of one shareholder: A shareholder—who may be an individual or another company—is requisite.
3. A registered office address: A genuine physical location in the country where you can receive formal correspondence.
4. Memorandum and articles of association: These are important documents that portray the guidelines of the company.
5. Declaration of share capital: Share capital must be declared during registration.
6. Sector-specific compliance: Based on the sector certain licenses and certifications may be required.

Steps on registering a private limited company in Kenya

Step 1. Create an eCitizen account and business name reservation

The process starts by selecting a unique business name a process that is aided by the eCitizen portal as follows:

1. Start by logging into your eCitizen account and go to Business Registration Service (BRS).
2. Carry out a name search to confirm if the name you intend to have for your company is available.
3. Move to reserve the name you have chosen and wait for 1-2 days.

Step 2. Prepare registration documents

When you have secured your company name submit the following documents digitally via eCitizen:

• CR1 Form: This is the application for the company registration.
• CR2 Form: This form presents the details of the company’s registered office.
• CR8 Form: This form notifies the appointment of company secretary and directors.
• Memorandum and Articles of Association (MOA): This outlines the company’s mission and structure.
• KRA PINs: It contains the KRA PINs of all directors and shareholders.

Step 3. Payment of registration fees

To register a private limited company you have to pay a government fee of about Kshs.10,000 which may change depending on the declared share capital or number of directors. This payments are made via eCitizen portal either by bank transfer or mobile money.

Step 4: Issuance of Certificate of Incorporation

After all the submitted documentations are verified the Business Registration Service(BRS) will give out a Certificate of Incorporation. Upon verification of the submitted documentation, the Business Registration Service will issue a Certificate of Incorporation which allows the business to start its operations and be legally registered.

Step 5: Acquiring KRA PIN for the company

After incorporation, the company has to get a KRA PIN for tax registration to meet Kenya’s taxation requirements such as VAT requirements, PAYE, and corporate tax.

Step 6: Opening a Corporate Bank Account

Once you have a Certificate of Incorporation and KRA PIN the next step is to get a corporate bank account which often requires the following documents:

• Memorandum and Articles of Association
• Company agreement approving the opening of the account
• Certificate of Incorporation
• ID or passport of directors and shareholders
• KRA PIN Certificate for the company

Step 7: Acquisition of Business Permits and Licenses

Depending on the nature of the business, additional permits and licenses might be necessary. Commonly required permits include: Permits and licenses rely on the kind of business you are but here are general permits you often require:

• Industry-based licenses: Required for sectors such as finance or healthcare and others that are issued by relevant regulatory bodies.
• County Business Permit: Issue by the county government you are based on such as Nairobi County.

Step 8: After-Registration permits and licenses.

After the successful registration of a Private Limited Company(PLC), These continuing legal responsibilities must be adhered to:

• Corporate Tax Compliance: PLCs must meet tax obligations such as PAYE, VAT, and corporate tax.
• Employment Laws: Adhere to Kenyan employment regulations such as remitting statutory contributions such as NSSF, PAYE, and KRA.
• Yearly returns: The Private limited company is supposed to file yearly returns with the Business Registration Service (BRS), and disclose any changes in shareholding, directors, and other details. The company is mandated to file annual returns with the BRS, disclosing any changes in directorship, shareholding, or other pertinent details.

Advantages of a private limited company

1. Less personal liability risks

Those who register as a sole trader, are personally liable for all the financial obligations and debts for the business. When it comes to a private limited company shareholder are now liable for any debts up to the value of their share. A sole trader’s assets can be seized and then he/she will pay the debts in case the business goes down. However, shareholders in private limited companies are liable to only pay up to their share in the business. Meaning before the law a shareholder is a legal identity that is separated from the business and in case of financial issues you are protected as a person and the overall business is accountable.

2. Reduced taxation

Private limited companies end up paying less tax compared to sole traders who have to pay for national insurance and income on all profits of the business which is based on yearly self-assessment. On the other hand, a private company pays corporation tax which is based on the company and doesn’t take into consideration any of the business expenses. The corporation taxes are often less compared to income tax rates. Private limited companies can claim a wider range of expenses which ends up saving the business more each tax year.

Directors of the company pay national insurance contributions and income tax. There are other ways of paying yourself from the company which can result in reduced personal tax.

3. Gravitas

Private limited companies have more credibility which makes it more easy to get new investors who can fund the business since they can authenticate the business. This also improves the chances of accessing funds from financial institutions such as banks, crowdfunding sites, and other lenders. The more capital a business has the more chances of improving on critical areas which can result in growth.

5. Business name protection

When coming up with a business name one tends to look up if the name already exists. After you register a private limited company no one else can use your business name since it is already registered on Companies House.

6. Flexibility on your income

You can be able to pay yourself dividends and also a salary. Dividends have a lower tax rate which will reduce your tax bill. If you are a director you can take bonuses, pension contributions, and many other payment options.

8 Disadvantages of Registering Private Limited Company in Kenya

1. Complexity of Registration Process

• Involves more formalities: Compared to sole proprietorships or partnerships, registering a private limited company is more complex and time-consuming. It requires drafting legal documents such as a Memorandum of Association and Articles of Association, as well as submitting paperwork to the Registrar of Companies.
• Costs: The cost of registration can be relatively high, especially for small businesses or startups. These include government fees, legal fees, and costs for professional services like company secretaries.

2. Ongoing Compliance and Regulatory Requirements

• Annual filings: Private limited companies in Kenya must file annual returns with the Registrar of Companies. This includes submitting audited financial statements if required, and keeping company records updated.
• Corporate governance: Directors must adhere to formal corporate governance rules, such as holding annual general meetings (AGMs), keeping minutes of meetings, and maintaining statutory registers (e.g., of members, directors, and charges).
• Company secretary: If a private company has a paid-up capital of KSh 5 million or more, it is required by law to appoint a qualified company secretary, which adds to administrative costs.

3. Limited Access to Capital

• Cannot raise capital from the public: Private limited companies cannot issue shares to the general public or list on the stock exchange. This limits their ability to raise large amounts of capital through equity markets, unlike public companies.
• Dependence on internal funding: Since the transfer of shares is restricted, private limited companies often rely on internal sources like personal savings, loans, or funding from a limited number of shareholders, which can limit growth potential.

4. Restricted Share Transfer

• Limitations on selling shares: One of the defining features of private limited companies is the restriction on transferring shares. Shareholders cannot freely sell or transfer shares without the consent of other members, which may create difficulties in exiting the company or attracting new investors.
• Family-owned disputes: In family-owned private companies, disagreements over shareholding or management control can become difficult to resolve due to these restrictions, potentially leading to conflicts.

5. Disclosure of Financial Information

• Loss of privacy: Although private companies are not subject to the same level of scrutiny as public companies, they are still required to file certain financial information, such as annual returns and shareholder details, with the government. Some of this information becomes publicly accessible, reducing privacy.
• Audit requirements: Private companies that exceed certain thresholds must prepare audited financial statements, which increases operational costs and may require disclosing sensitive financial information.

6. Taxation

• Corporate tax rates: Private limited companies in Kenya are subject to corporate tax, which is currently set at 30% of taxable profits for resident companies and 37.5% for non-resident companies. For small businesses, this can be a significant burden compared to the simpler taxation systems of sole proprietorships and partnerships.
• Double taxation: Shareholders of private companies may face double taxation—first at the corporate level (corporate tax on company profits), and then at the personal level when dividends are distributed (subject to withholding tax on dividends).

7. Higher Administrative Costs

• Operational overhead: Managing a private limited company involves ongoing administrative duties such as bookkeeping, legal compliance, and employee management. These can create higher operational costs compared to simpler business structures like sole proprietorships.
• Employee-related obligations: As private companies grow, they may need to comply with additional regulations such as employee pensions, PAYE (Pay As You Earn) taxation, and workplace safety standards.

8. Dissolution and Winding Up

• Complexity in dissolution: Winding up a private limited company is a complicated and lengthy process. It requires legal procedures, including the appointment of liquidators and settling debts before distributing any remaining assets to shareholders.
• Insolvency issues: If the company becomes insolvent, directors may face legal and financial consequences, including personal liability if found guilty of wrongful trading.

Cost of registering a private limited company in Kenya

The total amount incurred in establishing a private limited company in Kenya is based on several areas such as governmental charges and miscellaneous expenses. Find below the items and their costs.

Requirements for registering a company in Kenya

Here are the required documents for registration of a company. The registrar can ask for more documents.

1. Physical address of the company.
2. Passport or alien card (for foreigners), a copy of the national identification card, KRA PIN certificate, and a colored passport photo of each director, shareholder, and company secretary.
3. Shareholding information (ratio of how shares are held by the Directors).
4. Postal or physical address details for directors, shareholders, and company secretary.
5. Phone number and email addresses of each director.
6. Beneficial ownership information.
7. Phone number and email address of the company that is being incorporated.(contact)
8. Articles of association.

Related video guides on the company registration process:

Process of registering a private company in Kenya

How To Register A Company In Kenya

Process of registering a private company in Kenya (BRS)

Conclusion

While straightforward, registering a Private Limited Company in Kenya demands meticulous attention to legal and compliance details. By following the outlined steps and adhering to post-registration obligations, businesses can reap the manifold benefits of the PLC structure, including limited liability, tax advantages, and enhanced market credibility.