Table of Contents Introduction ........................................................................................... 1 Case Question .........................................................................................

1
The legal advantages that will accrue from the conversion ........................................................ 2 Legal provisions regarding minimum shareholding and minimum capital ............................ 3 What they should do regarding directorship................................................................................ 4 Procedure to adopt to ensure registration of the private company (Bada Limited) ............... 5

References .............................................................................................. 7

Introduction Companies in Kenya are regulated and registered under the Companies Act Cap 486 of the Laws of Kenya. Kenyas Companies Act is based upon the English Companies Act of 1948, and hence there is a lot of similarity between Kenyan law and English law in relation to companies. Thus the basis for Bernard, Aggrey, Dorothy and Abigail converting their business form a partnership to a private limited company. A private limited company is owned privately by a small group of people such as a family. They are not allowed to offer shares (in the company) to the general public and can operate through just one director. A private limited company cannot trade its shares on the stock market Although private limited companies are usually small in size, they are expensive to set up and have to produce proper accounts. Furthermore unlike a sole trader and partnerships, private limited companies have to pay auditors, hold meetings as stipulated in the Companies Act and share profits between all of the shareholders. Case Question Bernard Aggrey and their sisters Dorothy and Abigail have been in partnership business as florists since 2005. They have been employed full time in the business and have shared profits equally. They intend to convert the business into an private limited company, BADA Ltd. In which they hold equal shares. It is their intention that Bernard and Aggrey should be he directors. They seek advice on the points mentioned overleaf.

The legal advantages that will accrue from the conversion Legal advantages accrued by Bernard, Aggrey, Dorothy and Abigail in converting their businesses from a partnership to a private limited company are: They will be able to appoint directors by a single resolution without having to dissolve the company whereas in the partnership they had to dissolve the partnership any time a member needed to be added or removed. Bada Limited will become its own entity and thus exist separately from its directors. Bada Limited will also have the added advantage of limiting their liabilities. Limited liability is an important legal protection for shareholders as they only risk losing the amount of money that they have invested in the business and not their own personal assets. Ordinary partners are jointly, severally and unlimitedly liable for the debts of the partnership. This is a good reason to change from a Partnership to a Private Limited Company. From changing to a Private Limited Company, this means that if the business fails, the shareholders only lose the money invested in the business; their own personal assets, such as their home, are not at risk. This will make Bernard, Aggrey, Dorothy and Abigail more willing to invest their money in the business as the risk is reduced but shares cannot be sold on the Stock Exchange.

Another advantage of changing to a Private Limited Company would be that there are a number of tax advantages in forming this type of ownership. Profits are subject to corporation tax rather than income tax. The profits of a Private Limited Company are not normally subject to the higher rates of personal income tax.

The death or resignation of either of the directors will not affect the structure of the company. This is a strong advantage because the company continues to trade as before. This is because the company will have perpetual succession.

All their business losses, profits, and expenses flow through the company to the individual members. You avoid the double taxation of paying corporate tax and individual tax. Generally, this will be a tax advantage.

The conversion of partnership to private company in the case of Bernard, Aggrey Dorothy and Abigail will not stop the business because a private company can commence its business immediately after incorporation.

They must make sure that the company is registered as a private company Limited By shares.

Legal provisions regarding minimum shareholding and minimum capital

The day-to-day affairs of a company are usually carried on by its board of directors. A private company must have at least one director; if the company has only one director then the role of company secretary must be fulfilled by another person.
3

The minimum number of members on the board of directors is two for Bada Ltd which is a private limited.

If Bada Limited has a nominal share capital of Ksh100, 000 or more it must engage a professional company secretary.

The authorized share capital of a Kenyan company should be divided into different classes of shares, the rights pertaining to which are set out in the articles of association. Share capital can be reduced by the shareholders through passing a special resolution and subject to confirmation by the court. Bada ltd. is entitled under the Companies Act to issue preference shares.

A prospectus is not required and the Bada Limited being a private limited company will allots the shares immediately to its members when it has been issued a certificate of incorporation and commences trading.

What they should do regarding directorship The members should nominate and install Aggrey and Bernard the directors of the company. They should be aware that the directors of a private company are not required to file with the registrar written consent to act as director and sign the Memorandum of association for shares or enter into a contract for his qualification shares, if any. Aggrey and Bernard being directors of a private company need not possess any share qualifications. The date of birth of director need not be entered in the register of directors.
4

There is no restriction on the remuneration payable to directors. There is no restriction on any change in remuneration of directors There's also no restriction on the appointment of a managing director. Any increase in the remuneration not being sitting fees beyond the specified limit of directors on appointment or reappointment does not pre approval

Procedure to adopt to ensure registration of the private company (Bada Limited) The company registration process involves the following: 1. Get a promoter to promote the company and get the company started by way of searching for premises thus a domicile, arranging for number 2 below. This does not have to be an external party. They should also arrange for a qualified secretary in case none of them are qualified. 2. Name search: Takes about three days. 3. Prepare Memorandum and Article of Association: These documents will describe the objectives, rules, subscribers and authorized share capital of your company. These documents will then have to be stamped. They can also include a customized Articles of Association or invoke Table A. 4. Statement of the nominal capital: This document shows the amount and division of the nominal capital. Stamp duty will later have to be paid to have m stamped. The amount payable will depend on your declared nominal capital. 5. Declaration of compliance: A commissioner of oath must sign this form on your behalf and file with the registrar. 6. Filing of the Deeds and details: This will be done at the Companies Registry/registrar.
5

7. Register with the Tax Department for a company PIN and VAT. They may make (optional) registrations: Register for PAYE: This takes a day to register at the Kenya Revenue Authority and is free. Register for NHIF: This is a medical contribution for your employees. This is done at the NHIF building. Register for NSSF: Thus is a contribution to your employees retirement fund. They can do at the NSSF building. Register for a Business Permit: This is made to the City council. Bada Ltd. needs to have obtained the office space prior to submitting this application.

8. Get the Company Seal. And Bada Limited is good to go!

References Limited Company http://iwebtrix.com/blog/?page_id=50,2009

http://wiki.answers.com/Q/Why_a_partnership_might_decide_to_change_ to_a_private_limited_company,2010

Thimba, Mr., Class Notes, Company Law. 2010 Zahorsky, D Limited Liability Company 101 http://sbinformation.about.com/cs/ownership1/a/LLC.htm, 2010