There are various options available for new business whether it is a one-man show or an undertaking with multiple persons injecting capital. For every legal entity, there is a law corresponding to it setting out its features, how the entity is to be set up and managed. They include the following laws:
- Companies Act, 2015
- Limited Liability Partnership Act, 2012
- Partnership Act Cap 29
- Insolvency Act, 2015
A partnership is defined as the relationship which subsists between persons carrying on a business in common with a view of profit.
Types of partnerships
- Ordinary/general partnership
- This is a partnership between two or more people. Each partner is liable for any debts or actions taken on business by the other partners. The partners share in all assets, profits, and financial and legal liabilities.
- Limited partnership
- This is a type of partnership with both general partner and limited partners. The general partner is responsible for the day-to-day management of the partnership and is fully liable for the debts and liabilities of the partnership. Limited partners (sometimes called silent partners) do not do anything except invest in the business to get a share of the profits. Their liability is limited to their investment in the partnership.
- Limited liability partnership (LLP)
- LLPs are separate distinct legal personality from the partners. Liability of all partners is limited, unlike in Limited Partnerships under the Partnerships Act, where the liability of the general partner is unlimited.
- All LLPs are required to have at least one General partner. Further, every LLP must have at least one natural person among the general partners under the Act.
- To register an LLP you need at least Kshs. 25,000/= and to complete a form with the particulars of the LLP, the partners and the manager. LLPs are also required to file a declaration of insolvency annually and notify the registrar of any changes.
- Private Company
- A company is defined by the law to mean a company formed and registered under the Companies Act 2015 laws of Kenya.
- Separate legal entity. It is a separate and distinct entity from its members or management.
- Limited liability. The liability of the shareholders is limited to the amount unpaid on shares they have taken up in the company. Personal assets of the shareholders are also protected from being seized to discharge company debts and claims.
- Perpetual succession. Because a company is a legal separate entity, it outlives its members unlike partnerships which terminate upon death or incapacity of the partner.
- Membership. The Companies Act provides that a private company can have a minimum of one member and a maximum of fifty members.
- Set-up and Management cost. To incorporate a private company in Kenya, you need extensive documentation and at least Kshs. 12,000/=.
- A company is also required to file returns annually, prepare audited accounts and notify the registrar of changes in directorship, address, shareholding tec. It is more expensive to set up and run.