You’ve thought out your business idea and laid out the plan to find your first five paying customers. Now, the first port of the entrepreneurship journey is getting legal personhood: Register your business. Is it necessary? Yes. Is it beneficial? If you are about to launch a successful business, definitely. This post will clarify the process and provide a few nuggets from personal experience of how to ease the process of business registration.
Why is it necessary to register your business?
Among the many advantages to registering your business, the three that stand out are longevity, liability and access to capital.
Having a separate entity from yourself enables you to create a functional unit that is able to survive outside of you. An entity that can raise capital, have its own bank accounts and most importantly, it can continue when you reduce your involvement in daily operations.
The second advantage is the ability to limit your liability. Businesses incur losses and can sometimes run into debt. By registering your business, you limit your liability by safeguarding your personal assets from auctioneers and debt collectors if the business is liquidated. Not all business registrations provide limited liability guarantees, but it is good practice to separate personal financial decisions from business ones.
3. Access to capital
The third and often most prized advantage is access to capital. If your business is not registered, it also cannot possess a KRA pin, a bank account, financial records and a tax compliance certificate. Without all these things, you cannot get investors, a grant or a loan. The sooner you register your business and start keeping financial records, the better chance you have at getting capital once you need it.
Selecting the best vehicle to deliver your mission
In Kenya, there are five business registration classes. These are:
- Sole Proprietorship
- General Partnerships
- Limited Liability Partnerships
- Company Limited by Guarantee
- Company Limited by Shares
For public benefit organisations (PBOs) and other non-profits, the following categories exist:
- Non-Governmental organisations (NGOs)
- Community Based Organisations (CBO)
There are also a few special categories for government parastatals and bodies, branches or subsidiaries of international companies and organisations.
Your business registration has an impact on what activities the business entity can engage in, how it raises capital, what taxes it incurs and how effectively it delivers its mission. Evaluate your objectives, and consult with a lawyer or another experienced entrepreneur if you are struggling to decide. Don’t spend too long on deciding this, you always have the option to open a different entity later on. For example, many corporates open foundations later on to drive corporate responsibility initiatives. Some entities also allow for a change to another legal registration form.
The Business Registration Process
The process differs depending on the organisational entity you are applying for. However, a few requirements are similar across the board:
1. Conduct a name search
Select a minimum of 2 to 3 business names (what you would like to call your organisation), submit them on the e-citizen portal or visit the nearest Huduma centre. Each name search can take between 2 to 5 days and costs ksh 100 for the name search and ksh 50 in transaction costs – a total of 150 bob. Keep in mind that the cost is for one name only. You can only submit one name at a time, which the system will accept or reject before you can reapply. The results of the name search may not be communicated on email, so make sure you log in into the system to check the status of your application.
2. Register the business
Once e-citizen has approved your business name, you can initiate the process of registering your business. You will fill the required forms, submit the necessary documents to Sheria House and pay the applicable fees. Once the registration has been approved, you will receive a Certificate of Incorporation containing your business name and unique identification number.
- A completed registration form CR1 (available for download on e-citizen portal).
- Statement of capital.
- Memorandum and Articles of Association.
- Shareholders details; you will be required to upload scanned copies of ID card/passport, KRA PIN certificate and recent coloured passport photographs. The directors/shareholders have to be registered on the iTax platform.
- Physical residential address of directors.
- Company registration fee – ksh 10,650.
This can take between 5 to 10 business days and the process may vary depending on the entity you are registering. For example, for Companies Limited by Guarantee, the process may take longer since it requires additional vetting by the National Intelligence Service (NIS). The same goes for NGOs, which are vetted by the NGO Board.
You now have your business incorporation certificate – fantastic! Before you start operating the business there are few statutory things you need to keep in mind:
Make a date with the taxman by applying for a KRA PIN. This is important because it is near impossible to operate a business, win tenders and open a business bank account without an accompanying KRA PIN. When applying for the PIN through the iTax portal, make sure you choose the right tax obligations. For example, you do not need to apply for VAT if you have not met the 5 million revenue quota per annum. You can apply for this later once your business has grown.
4. Business permit
You will need to apply for a business permit (single/unified). Specific county offices issue this licence which gives you permission to run your business operations or have a physical office. If you have more than one office located in different counties, then you will need to apply for these separately. You can apply online through the e-business portal.
5. Permits and licences
Based on the type of operations, the law may require you to apply for additional permits and licences such as advertisement licence, fire certificate, occupational safety and health certificate, liquor licence among others. These can be county-specific or governed by a specific regulatory body. Often for the latter, these licences tend to affect specific industries and sectors. You will need to renew these licences annually or periodically.
6. Protect your intellectual property
Lastly, once everything is in place, you may want to consider applying for specific patents, copyrights and trademarks from the Kenya Industrial Property Institute (KIPI). This is to protect your intellectual assets, depending on the type of business you run. If this applies to you, we recommend that you do this before you participate in pitching events or investor discussions.
When your business grows and you start employing more people, you will need to sign up for NSSF, NHIF and NITA. As an employer, the law requires you to remit on behalf of your employees.
Other things to consider
While the process of business registration has become easier and faster over time and less dependent on lawyers, a few challenges remain. Often, the government does not provide the prescribed forms/templates to fill. In this case, you can look at the schedules (last page) of the specific laws that govern the creation of the specific business entity, such as the Company Act. This will enable you to create a similar one. Alternatively, most cyber/internet cafes provide this at a service at a fee. However, they are mostly familiar with Company Registration Forms (CR) so they may not know which forms are needed for other types of business registrations.
Secondly, while the government has taken a strong position in stamping out corruption in most of its offices, the practice is still pervasive the business registration process. You may be requested for a bribe, or find that officials are frustrating the process unless you offer something. Therefore, give yourself plenty of time to register your business if you can – if you are in a hurry, it may open opportunities for kitu kidogo. Council employees are also likely to knock on your door to check your business permits. Make sure your affairs are in order so that you don’t make yourself vulnerable to lunch requests.