REGISTERED COMPANIES (INCORPORATED COMPANIES)

Registered Companies that the law recognizes in Kenya are covered

under sections. 3-9 of the Companies Act of 2015. Registered companies
come into existence only when they are registered under the Act and a
certificate of incorporation has been issued by Registrar. Such
companies derive their powers from the Companies Act and the
memorandum of association of the company. These companies are
usually formed by private persons. According to Section 3 of the Act, a
company " means a company formed and registered under this Act or an
existing company;”
The types of registered companies in Kenya include:
i. Limited Companies
a) Public Limited Companies
b) Private Limited Companies

ii. Unlimited Companies

iii. Other categories of Companies

a) Unregistered companies
b) Holding and subsidiary Companies
c) Foreign Companies
I LIMITED COMPANIES
These are either private or public limited companies that may have their
liabilities limited by either shares or guarantee as provided in Section 5
of the Act.
Companies Limited by Shares
A company having the liability of its members limited to the value of
shares held by them is called a company limited by shares. If the
member has paid the entire value of the share, he does not owe any
further liability to the company and in case he has partly paid the value
of his share, the liability of such members is limited to the value of the
unpaid amount of the shares held by them. The liability of the
shareholder to pay the unpaid amount can be enforced during the
existence of the company and also during its winding up. Most of the
companies in Kenya belong to this category.
According to sections 6 of the Act:
6. (1) For the purposes of this Act, a company is a company limited by
shares if the liability of its members is limited by the company's articles
to any amount unpaid on the shares held by the members.
(2) For the purposes of subsection (1), the liability of the members of an
existing company is taken to be limited by the company's articles to any
amount unpaid on the shares held by the members if a condition of the
memorandum of association of the company stating that the liability of
the members is limited is regarded as a provision of the articles by virtue
of section 70.
Companies Limited by Guarantee
Such a company is defined as a company having the liability of its
members limited to such amounts as the members may respectively
undertake to contribute to offset the debts of the company in the event of
its being wound up. The amount guaranteed by each member cannot be
demanded until the company is wound up. Hence, guaranteed capital
takes the nature of a “Reserve Capital”. Such companies may or may not
have a capital share. They have generally formed without a capital for
non-trading purposes, such as the production of
 art, science, culture, sports etc. The article of such a company must state
the number of members with which the company is to be registered.
Section 7 of the Company’s Act provides
(1) For the purposes of this Act, a company is limited by guarantee if:
(a) it does not have a share capital;
(b) the liability of its members is limited by the company's articles to the
amount that the members undertake, by those articles, to contribute to
the assets of the company in the event of its liquidation; and
(c) its certificate of incorporation

states that it is a company limited by guarantee.

(2) Subsection (1) does not prohibit a company limited by guarantee
from having a share capital if it was formed and registered before the
commencement of this section.
If a company limited by guarantee and has no share capital then the
Memorandum and Articles must be in the form set out in a prescribed
format detailed in the Act. A Company limited by guarantee and with no
share capital can commence business on incorporation. It does not need
any certificate to commence business or prospectus. Each member is
required to contribute to the assets of the company in the event of it
being wound- up while he is still a member or within one year after he
ceases to be a member.
Private and Public Limited Companies
The Act provides for limited companies to either be:
 a) Private Limited companies or
b) Public Limited companies
Private Limited Company
According to section 9 (1) of the Companies Act, 2015, a company is
categorized as a private company if:
(a) its articles-

(i) restrict a member's right to transfer shares;

ii) limit the number of members to fifty; and
(iii) prohibit invitations to the public to subscribe for shares or
debentures of the company;

b) it is not a company limited by guarantee; and

(c) its certificate of incorporation states that it is a private
company.

(2) In subsection (1)(a)(ii), "member" excludes-

(a) a member who is an employee of the company; and
(b) a person who was a member while being an employee of the
company and who continues to be a member after ceasing to be
such an employee.
(3) For the purposes of this section, two or more persons who hold
shares in a company jointly are taken to be a single member.

In case of a private company, note the following points: -

1. The articles merely restrict the right to transfer its shares rather
than forbidding it. The articles cannot prohibit the members from
transferring their shares. These can only restrict because it is the
right of a member to transfer his shares and quit the company.
 Normally, a member can transfer his shares with the consent of
other members.
2. A private company cannot go to the public e.g., through private
placing.
3. A private company is called private because the number of
shareholders varies from one to fifty. The membership of a private
company is mostly based on personal relationships e.g., relatives,
friends, family members etc.

Public Limited Company

A public company is that which is not a private company. Section 10 of
the Act defines a company as a public company if:
(a) its articles allow its members the right to transfer their shares in the
company;
(b) its articles do not prohibit invitations to the public to subscribe for
shares or debentures of the company; and
(c) its certificate of incorporation states that it is a public company.
It should be noted that a public company must add the word “Limited” at
the end of its name. There is no limit on the maximum number of
members. A public company does not enjoy the privilege of a private
company.
Some of the characteristics of the public company are:
i. It doesn’t have any restrictions on the transfer of shares
ii. It doesn’t have an upper limit of the members
iii. It can invite the public to subscribe to its shares or debentures.
However, it is not obliged to invite the public.
Differences between a private and a public limited company:
Number of Members
The maximum number of members in a private company cannot exceed
fifty excluding its present
or past employees. In the case of a public company, there is no
maximum limit on members.
Transfer of Shares
In a private company, the articles restrict the right of members to
transfer their shares whereas in a public company, the shares are freely
transferrable.
Public Subscription
A private company cannot invite the public to purchase its shares or
debentures. A public company may do so.
Issue of Deferred Shares
A private company can issue deferred shares carrying disproportionate
voting rights. But a public company cannot issue such shares.
Issue of Prospectus
Unlike a public company, a private company is not expected to issue a
prospectus or file a statement in lieu of prospectus with the registrar
before allotting shares.
Holding of Statutory Meeting
A private company is not required to hold a statutory meeting whereas a
public company must do so after one month of being issued with a
certificate of incorporation, but before six months of obtaining the
certificate of commencement of business.
Commencement of Business
A private company may commence its business immediately after
obtaining a certificate of incorporation. A public company cannot
commence its business until it is granted a “Certificate of
commencement of Business”.
Allotment of Shares
A private company can proceed to allot shares even before the minimum
subscription is subscribed or paid. But a public company cannot allot
shares without raising minimum subscription.
Issue of Right Shares
While making further issue of capital, a public company is required to
first offer such further shares to its existing shareholders on a pro-rata
basis. But a private company is not required to do so.
Special Privileges
A private company enjoys some privileges which are not granted to a
public company.

II UNLIMITED COMPANIES
An unlimited company has no limit on the liability of it’s members.
Section 8 provides for Unlimited companies. The section defines an
unlimited company as one in which:
(a) there is no limit on the liability of its members; and
(b) its certificate of incorporation states that the liability of its members
is unlimited.

In an unlimited company, the articles shall state the number of

members with which the company is to be registered, and, if the
company has a share capital, the amount of share capital with which the
company is to be registered. It is to be remembered here that the liability
of a member is enforceable only at the time of winding up of the
company. Such companies are registered mostly to promote charity or
render some social services. However, these companies are rare these
days. The Memorandum and Articles of an unlimited company with a
share capital must be in the prescribed form set out in the Act.
Alteration of the Status of a Company
Section 69 of the Companies Act allows that a company once registered
under any of the above categories can convert itself into any of the other
categories as follows:
69. A company can, in accordance with this part convert itself —
(a) from being a private company into being a public company;
(b) from being a public company into being a private company;
(c) from being a private limited company into being an unlimited
company;
(d) from being an unlimited private company to a limited company; or
(e) from being a public company into being an unlimited private
company.
The subsequent sections 70-93 outline the details of each subset of
conversion.
III OTHER CATEGORIES OF COMPANIES
a) Un registered Companies
This is a company that is not registered under the Companies Act
b) Holding and Subsidiary Companies
Holding Company
According to section 3 (1) of the Companies Act, “when a company has
control over another company, it is known as a holding company. The
company which is so controlled is known as a subsidiary company. In
relation to another company, a holding company is one that:
i. Controls the composition of the Board of directors of the other
company – According to section 4. (1) For the purposes of
paragraph (a) of the definition of "holding company" in section
3(l), a company controls the composition of another company's
board of directors if it has power to appoint or remove all, or a
majority, of that other company's directors without any other
person's consent.
ii. Controls more than 50% of the voting rights in that other company
iii. Holds more than 50% of the issued share capital in that other
company
iv. Is a holding company of a company that is that other company’s
holding company” eg. Company B is subsidiary of company A,
and company C is a subsidiary of company B. Accordingly,
company C becomes a subsidiary of company A. If company D is
a subsidiary of company C, company D will become a subsidiary
of company B and consequently also of company A.
The companies Act defines a holding company as a company of which
the other is a subsidiary company of the company.
A holding company is formed with the aim of holding or owning stock
in other corporations.
A company may become a holding company by:
a. Acquiring enough voting stock in another company to exercise
control of its operations
b. Forming a new corporation and retaining all or part of the new
corporation’s stock
Subsidiary Company
According to section 3 of the Act, a subsidiary company is one which
another company is its holding company. A subsidiary company is one
which another company (usually larger than the subsidiary one) owns all
or at least a majority of the shares. The other company is called the
parent company, and, as it owns the subsidiary, it may control its
activities.
A subsidiary can be formed in various ways;
a) Purchasing a controlling interest in an existing company
b) Creating a new company as a subsidiary
Reasons for creating subsidiary companies:
i. It is a less costly investment compared to a merger
ii. No approval of the stockholders is required as in the case of a
merger
iii. The acquired company can continue to operate with its own name
in the market, which is more advantageous, and would not be the
case in a merger because the name has to change
iv. A subsidiary can continue to offer goods and or services that are
distinct from the parent company.
v. It’s a suitable model for companies that operate in more than one
country e.g multinationals either to comply with the country’s
requirement or request for the multinational company to do
business in that country; or to obtain favourable tax treatment.
vi. To limit liability in connection with very risky ventures. The
parent and the subsidiary remain separate legal entities, and this
immunizes the parent company from financial responsibilities of
the subsidiary companies.
Shortcomings of parent-subsidiary relationship
i. Multiple taxation
ii. The duty placed on the parent company to promote the subsidiary’s
corporate interests, to act in the best interest of its subsidiaries and
at the same time to maintain a separate corporate identity. Should
the parent company fail to meet these requirements, the court will
perceive the subsidiary as a business conduit for the parent and the
two corporations will be merged for liability purposes.
iii. It creates disadvantages for individual investors - Holding
companies hold an influential number of shares in most of the
companies they own. If the holding company decides to liquidate
their holdings, then the effects on the individual investor can be
very traumatic. Holding companies can dramatically change the
landscape of a trading day by initiating a handful of transactions.
iv. It reduces the level of transparency available to the consumer -
Most holding companies are not required to report on how their
company is being internally managed. Their responsibility is to
their own shareholders, which means reporting on the status of the
dividends they receive. Consumers are often doing business with
companies that are owned, in part or in whole, by holding
companies without realizing it. Without transparency, it makes
 things more difficult for the average consumer to make informed
investment or purchasing decisions.
v. It is not always easy for holding companies to sell their shares -
Holding companies can sometimes find themselves unable to sell
their shares in a company, even if they wanted to do so. Dumping a
large number of shares on the open market does not guarantee that
they will all be sold. Forcing a holding company to hold onto some
of their shares is the one option individual investors have to limit
their own potential losses. Although strong holding companies
should have a diversified portfolio of companies that provide them
with stable income, one big loss could destabilize the company and
make life difficult.
vi. It forces a heavy reliance on a single income resource - Because
60% of income must come from dividends, interest, or other
revenues that are not related to products or services, it forces a
holding company to be reliant on the performance of the market.
They are only as strong as the strategies they use to procure shares
in consistent companies. If there is a bad run on dividends for the
company, it could be enough to put it out of business. Even with
products or services available to supplement income, there just
isn’t enough time to develop new revenue streams during a
strategy collapse.

c) Foreign Company
A foreign company is understood as a company incorporated outside
Kenya. According to the Act, a foreign company means a company
which is incorporated outside Kenya but has an established place of
business in Kenya. For registration purposes, a foreign company which
establishes a place of business in Kenya is required to deliver the
following documents to the Registrar:
 i. A certified copy of the current certificate of the foreign
company’s incorporation or registration in its place of origin, or
a document of similar effect.
ii. A certified copy of its constitution
iii. A list of all the directors and their personal details. The list
should indicate the directors who reside in Kenya and those who
are members of a local board of directors and the powers of
those directors
iv. A statement of all registrable subsisting charges created by the
company e.g. a charge on book debts of the company, a charge
on calls made but not paid, a charge on immovable property etc.
v. Address of the registered office in its place of origin or it’s
principal in its place of origin
On submission of the above documents, the registrar shall register the
company and issue it with a unique identifying number and a compliant
certificate of registration. This certificate provides the evidence that the
company has been registered as a foreign company in Kenya.