Business Structures in Kenya
REDD+ Law Project - Briefing Paper
July 2014
Mona Doshi
Partner, Anjarwalla & Khanna (Africa Legal Network), Mombasa office.
Caroline Wanjiku Kago
Chairperson, Department of Private Law, Kenyatta University School of Law (KUSOL)
Leah Kiguatha
Lecturer, Department of Public Law, Kenyatta University School of Law (KUSOL)
Dr Sophie Chapman
Research Associate, Cambridge Centre for Climate Change Mitigation Research
The REDD+ Law Project is led by Baker & McKenzie and the Cambridge Centre
for Climate Change Mitigation Research (University of Cambridge), working with
international and local advisers/institutions to assist countries in the development
and implementation of their national REDD+ legal frameworks.
More information regarding this initiative is available at
http://www.4cmr.group.cam.ac.uk/research/projects/reddpluslawproject
1
CONTENTS
__________________________________________________________________________________
About this brief
1
Comparative table of business structures
(Company limited by guarantee, Bare Trust, Society, Non-governmental organisation)
2
Company limited by guarantee
3
Bare Trust
4
Society
5
Non-governmental organisation
6
Joint Venture
__________________________________________________________________________________
ABOUT THIS BRIEF
The finance required to halve emissions from the forest sector to 2030 is expected to be substantial,
with a role for both the public and private sectors. Early involvement by the private sector has largely
been in the role as offset buyers in the voluntary market for forest carbon credits. However, with no
certainty that a future REDD+ market will be established, alternative ways for the private sector to
participate in REDD+ are being contemplated. Given that REDD+ is increasingly being framed as a
sustainable development opportunity that supports ‘green growth,’ the role of the private sector in the
REDD+ value chain and ‘green economy’ are being explored at a high level in many countries,
including Kenya.
In any sector, businesses usually adopt one of several legal structures (often called ‘business
structures.’) It can be expected that businesses seeking to engage in REDD+ implementation or, more
broadly, business opportunities in the ‘green economy’ will do the same. Different business
structures offer different benefits and impose different obligations. A business therefore needs to
consider its aims and needs in order to choose the most appropriate type of business structure.
This Brief summarises the types of business structures available under Kenyan law. It provides both a
comparison table and individual summaries.
2
1
COMPARATIVE TABLE OF KENYAN BUSINESS STRUCTURES
Governing legislation
Overview
Company limited by
guarantee
Companies Act (Cap 486)
Bare Trust
Society
Trustees Act (Cap 167)
Trustees (Perpetual
Succession) Act (Cap 164)
Societies Act (Cap.108)
In the event of a wind up, the
liability of members is limited
to the amount that members
have guaranteed to contribute to
the assets of the company.
Also known as a simple trust.
A flexible method of
constituting an association for
charitable purposes.
Can be incorporated either with
or without share capital.
However, in most cases
companies limited by
guarantees are incorporated
without share capital.
When should this structure be
used?
Appropriate for professional,
trade and research associations,
and clubs supported by annual
subscription.
Can also be used for registration
of charitable and not for profit
organizations.
Each beneficiary has an
immediate and absolute right to
both capital and income.
Beneficiaries also have the right
to actual possession of trust
property.
Can be used in any situation
where a trust is required.
Best suited for a charity that is
initiated by a group of ten or
more people rather than a single
founder and that relies on
subscriptions, voluntary
contributions and fundraising
efforts rather than on substantial
endowments.
Non-governmental
organisation
Formerly governed by the NonGovernmental Organizations
Co-Ordination Act, 1990
Now governed by the Public
Benefit Organisation Act Act
No. 18 of 2013
A private voluntary grouping of
individuals or associations not
operated for profit or for other
commercial purposes.
Have organized themselves
nationally or internationally for
the public benefit, and the
promotion of social welfare,
charity or research in areas
including health, relief,
agriculture, education, industry
and the supply of amenities and
services.
Incorporated for public benefit
and to promote social welfare,
health, relief, agriculture,
education, industry and the
supply of amenities and
services.
In Kenya, the type of
organizations that are registered
as societies include political
parties, self-help groups,
3
Company limited by
guarantee
Members and officers
No maximum number of
members.
Minimum number of members
is two (2) for a private company
or seven (7) for a public
company.
No restrictions on non-Kenyan
citizens.
Bare Trust
No minimum or maximum
number of members prescribed
by law but this is set out in the
trust deed.
Society
neighborhood associations and a
wide variety of charitable
associations.
By its definition, the minimum
number of members is ten.
Non-governmental
organisation
No restrictions on non-Kenyan
citizens
No restrictions on non-Kenyan
citizens.
Trustees may be individuals
(whether local or foreigners), or
a body corporate in the nature of
a trust corporation, or a mixture
of both.
Under Section 36 of the Trustee
Act, in the case of settlements
and dispositions on trust for sale
of land the number of trustees
shall not exceed four, and,
where more than four persons
are named as trustees, the four
first named (who are able and
willing to act) shall alone be the
trustees, and the other persons
named shall not be trustees
unless appointed on the
occurrence of a vacancy. This
section only applies to
settlements and dispositions of
land, and the restrictions
imposed on the number of
trustees do not apply (a) in the case of land vested in
trustees for charitable,
ecclesiastical or public
4
Company limited by
guarantee
Bare Trust
Society
Non-governmental
organisation
No foreign investment
restrictions
A society may be classified as
'registered' or 'exempt'.
No foreign investment
restrictions
Applications for registration
must be submitted to the
executive director of the NonGovernmental Organizations
Co-ordination Board in the
prescribed form.
purposes; or
(b) Where the net proceeds of
the sale of the land are held for
those purposes.
Foreign investment
restrictions
Initial steps to establishment
No foreign investment
restrictions
Members propose a name and
the objects of the Company.
The following details must be
provided upon Registration:
1. Address, nationality, and
occupation of each proposed
director;
2. Address and CPS number of
the Company Secretary; and
3. Address of the proposed
Registered Office, including
its postal and physical
address (plot and section
number, and road name).
No foreign investment
restrictions
Trustees prepare a Trust Deed
which defines:
- the objects of the Trust;
- the Name of the Trust;
- the powers of the trustees;
- the powers to change and
appoint additional trustees;
- resignation and removal of
trustees; and
- meeting of trustees.
Once the trust deed has been
approved by the trustees, the
deed is signed and thereafter
stamped.
Suitable Memorandum and
Articles to be prepared and
filed.
After stamping, the trust deed is
presented for registration at the
Registry of Documents
The capital that each member
undertakes to contribute must be
stated in the Memorandum.
Upon Registration, a certified
copy of the trust deed and a
petition for incorporation is
prepared in the prescribed form
then lodged with the Cabinet
Secretary for land for
incorporation of the trust.
The Memorandum and Articles
must be stamped and registered
with the Registrar of
Companies.
Societies are exempt when they
do not have to comply with
certain requirements, such as
rendering accounts and annual
returns to the Registrar of
Societies.
Applications for registration, or
for exemption from registration,
are made to the Registrar of
Societies. Applications must be
lodged together with a copy of
the society’s (proposed)
constitution and rules.
Once a society has been
registered or is exempt from
registration, the Registrar shall
issue a certificate of registration
or exemption from registration
to the society, in the prescribed
form.
An application for registration is
made by the chief officer of the
proposed organization and must
specify:
(a) other offices of the
organization;
(b) the head office and postal
address of the organization;
(c) the sectors of the proposed
operations;
(d) the districts, divisions and
locations of the proposed
activities;
(e) the proposed average annual
budgets;
(f) the duration of the activities;
(g) all sources of funding;
(h) the national and
international affiliation and the
certificates of incorporation.
5
Company limited by
guarantee
Bare Trust
Society
Non-governmental
organisation
Upon registration a certificate of
registration is issued to the nongovernmental organization.
For incorporation
K.Shs.50,000/=
Income Tax
For incorporation
K.Shs.50,000/=
Income Tax (subject to the
exemptions under Paragraph 10
of the first schedule of the
Income Tax Act)
Please note that this process is
very extensive.
Fees
Taxes applicable
For incorporation
K.Shs.75,000/=
Value Added Tax (where
applicable)
For incorporation
K.Shs.50,000/=
Value Added Tax (where
applicable)
Income Tax: The Trust may be
exempted from income tax
pursuant to paragraph 10 of the
First Schedule to the Income
Tax Act (Cap 470) if the trust is
established solely for the
purposes of the relief of poverty
or distress of the public, or for
the advancement of religion or
education
The transfer of property into a
charitable organisation is only
exempt from stamp duty if the
sale or transfer is for the
purposes of construction or
expansion of educational
institutions.
Value Added Tax (where
applicable)
Section 138 (1) of The Customs
and Excise Act (Cap 472)
allows the Finance Minister to
remit, in whole or in part, duty
payable by any person on
certain goods, aircraft, vessels
or vehicles imported by that
person, if the Minister is
satisfied that:
 it is in the public interest to
do so
 if such goods are donated or
purchased for donation by
any person to non-profit
making organizations or
institutions approved by the
Government, for their
official use or for free
distribution to poor and
needy persons, or
 for use in medical treatment,
educational, religious or
rehabilitation work.
6
Reporting and compliance
Company limited by
guarantee
Bare Trust
Society
If the company has share
capital, it must file an annual
return to the Companies
Registry like any other limited
liability company.
Subject to less onerous
accounting and reporting
requirements than companies.
Notice in the prescribed form of
any change of the situation of
the office, or of the postal
address, must be given to the
Registrar of Societies within 14
days of such change.
If the company has no share
capital, it must file an annual
return stating the address of the
registered office.
Particulars of the total amount
of the company’s indebtedness
in respect of all mortgages and
charges are required to be
registered with the Registrar of
Non-governmental
organisation
In Sections 29 and 30 of the
Non-Governmental
Organizations Co-Ordination
Act (1990) a non-governmental
organisation may be entitled to
various tax exemptions (upon
making the necessary
applications and procuring the
necessary consents) relating to:
a. duty in respect of imported
goods or equipment;
b. value added tax on goods
and services required to
meet the Organization’s
objectives;
c. value added tax on income
generating activities; and
d. Income tax for expatriate
employees.
The Non-Governmental
Organisations Co-ordination
Board shall keep books of
records of the nongovernmental organisation's
income, expenditure, assets and
liabilities.
Every registered society shall
keep a register of its members in
such form as the Registrar of
Societies may specify,
containing the:
 name and address of each
member,
 the date of their admission
to membership, and
7
Company limited by
guarantee
Companies
Liability of members
Members have limited liability.
In the event of a company being
wound up, a company's
members are only liable for the
start-up capital they invested.
A member continues to be held
liable for a period of one year
after their membership ceases.
Bare Trust
Society
Non-governmental
organisation
 the date on which he ceases
to be a member.
Trustees are personally liable
for all contractual relationship
that arise with third parties.
Trustees are also personally
liable for the actions of
employees which were done in
the course of their employment
and within the scope of their
authority.
Every registered society shall
annually furnish to the Registrar
of Societies, on or before the
prescribed date, such returns,
accounts and other documents
as may be prescribed.
Once the society is registered,
all current and subsequent
members are collectively
considered to be a body
corporate under the name of the
society.
Body corporate capable of suing
and being sued in its corporate
name.
The incorporated society takes
on a separate legal identity
distinct from its members.
Third parties have no direct
right to payment out of the trust
assets.
Trustees may, however, be
entitled to an indemnity out of
the trust fund for liabilities
properly incurred.
Further, a trustee’s personal
liability may be limited or
exempted by creating express
provisions in the trust
instrument.
8
Company limited by
guarantee
Bare Trust
Society
Non-governmental
organisation
Trustees of a charity may also
apply pursuant to the provisions
of the Trustees (Perpetual
Succession) Act for a certificate
of incorporation of the trustees
as a corporate body. If this
certificate is granted to the
trustees, the trustees shall
thereupon become a body
corporate by the name described
in that certificate, and shall have
perpetual succession and a
common seal, and power to sue
and be sued in their corporate
name.
Therefore, the combination of
registering a trust under the
Trustees (Perpetual Succession)
Act and utilising corporate
trustees may significantly
reduce the risk associated with
exposing individual trustees to
unlimited personal liability.
Trustees may be liable for
breach of trust if, for example,
they act with negligence or in
excess of the duties imposed on
them by the trust.
Where several trustees are
implicated in a breach of trust,
all such trustees will be jointly
and severally liable to the
person entitled to sue.
9
Company limited by
guarantee
Bare Trust
Jurisdiction
Disposal of assets on winding
up
National
After a winding-up order has
been made, the liquidator takes
into his custody or under his
control all the property to which
the company is or appears to be
entitled.
However, for those trustees not
implicated in such breach, they
can benefit from the statutory
liability exemption provisions
set out in Section 32 of the
Trustee Act (Cap 167) which
states that:
“A trustee shall be
chargeable only for money
and securities actually
received by him
notwithstanding his signing
any receipt for the sake of
conformity, and shall be
answerable and accountable
only for his own acts,
receipts, neglects or
defaults, and not for those of
any other trustee."
National
No procedure for winding up is
provided. As such, the trust
deed should set out how the
assets of the trust will be
disposed in the event of it being
wound up.
Restrictions on the activities
of the entity, i.e. commercial
activities, land holding, etc.
Under Article 65 of the
Constitution, a person who is
not a citizen may hold land on
the basis of leasehold tenure for
a term not exceeding ninetynine years.
Under Article 65 of the
Constitution, a person who is
not a citizen may hold land on
the basis of leasehold tenure for
a term not exceeding ninetynine years.
Society
Non-governmental
organisation
National
Upon winding up, the court
appoints a Receiver who shall
then be responsible for the
winding up of the assets of the
society.
National
No procedure for winding up is
provided. As such, the
procedure for disposal of assets
should be set out in the
constitutional documents.
Under Article 65 of the
Constitution, a person who is
not a citizen may hold land on
the basis of leasehold tenure for
a term not exceeding ninetynine years.
Under Article 65 of the
Constitution, a person who is
not a citizen may hold land on
the basis of leasehold tenure
only, and any such lease,
however granted, shall not
exceed ninety-nine years.
10
Company limited by
guarantee
A body corporate shall be
regarded as a citizen only if the
body corporate is wholly owned
by one or more citizens.
Bare Trust
Society
A body corporate shall be
regarded as a citizen only if the
body corporate is wholly owned
by one or more citizens.
A body corporate shall be
regarded as a citizen only if the
body corporate is wholly owned
by one or more citizens.
This means land held by a
company which is not wholly
owned by one or more citizens
can only be held for a leasehold
term of 99 years.
Property held in trust shall be
regarded as being held by a
citizen only if all of the
beneficial interest of the trust is
held by Kenyan citizens.
This means that land held by a
society which is not wholly
owned by one or more citizens
can only be held for a leasehold
term of 99 years.
Where a transaction involves
the sale, lease or transfer of
agricultural land in which the
consent of the Land Control
Board is required, then under
the Land Control Act, the Land
Control Board will not grant its
consent if the transaction is to a
non-Kenyan citizen, or a private
company, or co-operative
society, all of whose members
are non-citizens of Kenya.
This means that land held by a
trust which is not wholly owned
by one or more citizens can only
be held for a leasehold term of
99 years.
Where a transaction involves
the sale, lease or transfer of
agricultural land in which the
consent of the Land Control
Board is required, then under
the Land Control Act, the Land
Control Board will not grant its
consent if the transaction is to a
non-Kenyan citizen, or a private
company, or co-operative
society, all of whose members
are non-citizens of Kenya.
Any dealing in land is subject to
the user of that land which is set
out in the document of title in
respect to that land. This is
another form of restriction in
land holding (a ‘user of land’ is
the specific ‘use’ to which that
land may be applied, eg.
industrial, residential,
commercial, etc. The user is
normally stated on the
Where a transaction involves
the sale, lease or transfer of
agricultural land in which the
consent of the Land Control
Board is required, then under
the Land Control Act, the Land
Control Board will not grant its
consent if the transaction is to a
non-Kenyan citizen, or a private
company, or co-operative
society, all of whose members
are non-citizens of Kenya.
Any dealing in land is subject to
the user of that land which is set
out in the document of title in
respect to that land (a ‘user of
land’ is the specific ‘use’ to
Any dealing in land is subject to
the user of that land which is set
out in the document of title in
respect to that land (a ‘user of
land’ is the specific ‘use’ to
which that land may be applied,
eg. industrial, residential,
commercial, etc. The user is
normally stated on the
document of title to that land).
This is another form of
Non-governmental
organisation
A body corporate shall be
regarded as a citizen only if the
body corporate is wholly owned
by one or more citizens.
This means that land held by an
NGO which is not wholly
owned by one or more citizens
can only be held for a leasehold
term of 99 years.
Where a transaction involves
the sale, lease or transfer of
agricultural land in which the
consent of the Land Control
Board is required, then under
the Land Control Act, the Land
Control Board will not grant its
consent if the transaction is to a
non-Kenyan citizen, or a private
company, or co-operative
society, all of whose members
are non-citizens of Kenya.
Any dealing in land is subject to
the user of that land which is set
out in the document of title in
respect to that land. This is
another form of restriction in
land holding.
11
Company limited by
guarantee
document of title to that land).
Bare Trust
Society
which that land may be applied,
eg. industrial, residential,
commercial, etc. The user is
normally stated on the
document of title to that land)
This is another form of
restriction in land holding.
restriction in land holding.
Non-governmental
organisation
12
2
COMPANY LIMITED BY GUARANTEE
Company limited by guarantee
Governing legislation
Overview
When should this
structure be used?
Members and officers
Foreign investment
restrictions
Initial steps to
establishment
Fees
Taxes applicable
Companies Act (Cap 486)
 In the event of a wind up, the liability of members is limited to the amount that members have guaranteed to contribute to the assets of
the company
 Can be incorporated either with or without share capital. However, in most cases companies limited by guarantees are incorporated
without share capital.
Appropriate for professional, trade and research association, and clubs supported by annual subscription. Can also be used for registration or
charitable and not-for-profit organizations.



No maximum number of members provided for
Minimum number of members is two (2) for a private company or seven (7) for a public company
No restrictions on non-Kenyan citizens
No foreign investment restrictions







Members propose a name and objects of the Company
Provide details of the addresses, nationality and occupations of the persons proposed to be the directors of the company
Details of the person who is to be the company secretary
Details of the registered office of the company, that is its postal and physical address (plot and section number and road name)
Suitable Memorandum and Articles be prepared and filed
The amount of money that each member undertakes to contribute must be stated in the Memorandum.
The Memorandum and Articles must be stamped and registered with the Registrar of Companies.
For incorporation K.Shs.75,000/=
Value Added Tax (where applicable)
13
Reporting and
compliance
If the company has share capital, it must file an annual return like any other limited liability company
If it has no share capital, it must file an annual return stating the address of the registered office.
 If the register of members is not kept at the registered office, the address of the place where it is kept.
 The particulars of the directors and the secretary, which are required to be kept in the register of directors and secretaries.
 Particulars of the total amount of the company’s indebtedness in respect of all mortgages and charges required to be registered with the
Registrar of Companies
Members have limited liability: only liable to the specified amount which a member undertakes to contribute towards the assets of the company
in the event of its being wound up.
Liability of members
Liability extends to one year after a member ceases to be one.
Jurisdiction
Disposal of assets on
winding up
Restrictions on the
activities of the entity,
i.e. commercial activities,
land holding, etc.
National
After a winding-up order has been made the liquidator takes into his custody or under his control all the property to which the company is or
appears to be entitled.
The liquidator may, after giving such indemnity, if any, as the court may direct, bring or defend in his official name action or other legal
proceeding which relates to that property or which it is necessary to bring or defend for the purpose of effectually winding up the company.
Under Article 65 of the Constitution, a person who is not a citizen may hold land on the basis of leasehold tenure for a term not exceeding
ninety-nine years.
A body corporate shall be regarded as a citizen only if the body corporate is wholly owned by one or more citizens.
This means that land held by a company which is not wholly owned by one or more citizens can only be held for a leasehold term of 99 years.
Under the Land Control Act, where a transaction involves the sale, lease or transfer of agricultural land in which the consent of the relevant
Land Control Board is required, the Land Control Board will not grant its consent if such sale, lease or transfer is to a non-Kenyan citizen or a
private company or co-operative society all of whose members are not citizens of Kenya
Any dealing in land is subject to the user of that land which is set out in the document of title in respect to that land. This is another form of
restriction in land holding.
14
Formation of a Limited Liability Company
Companies are registered under the Companies Act Chapter 486, Laws of Kenya:
1.
Reservation of Name.1 The lawyer requests the Registrar of Companies to reserve the three names notified to him by letter. This prompts the
Registrar to conduct a search to confirm the names’ availability and desirability.
2.
Preparation of Memorandum & Articles of Association and requisite forms.2 The lawyer then proceeds to prepare the Memorandum & Articles
of Association. They incorporate the information procured during the client meeting. The Memorandum and Articles are the constitution of the
company and lay out its objects, its management structure and moderates the relationship between shareholders, directors and third parties. The
constitution documents are prepared along with the requisite registration forms.
3.
The constitution and the registration forms are then signed by the founders and the designated company secretary.3
4.
They are then forwarded to the collector of stamp duty for the assessment of stamp duty (tax) payable and thereafter the stamp duty is paid. This is a
process that takes 3 to 5 working days.
5.
Once the stamp duty payment receipt is back, the constitution and all the registration4 forms are submitted to the Registrar of Companies for the
incorporation of the company.
6.
In the case of a Company Limited by Guarantee, the National Intelligence Service then undertakes a security check on all the subscribers to the
Memorandum and Articles of Association.
7.
Once the documents are lodged, the certificate of incorporation is prepared and issued within fourteen (14) days. In the case of a Company Limited by
Guarantee, the certificate of incorporation5 is released after a period of between 6 to 12 months owing to the security checks.
1
Section 19(1)(a) of the Companies Act.
2
Section 4 (1), 5, 9, 10, 11, 12 Companies Act.
3
Section 12 Companies Act.
4
Section 15 Companies Act.
5
Section 16(1) Companies Act.
15
8.
If requested to do so, the lawyer who is engaged would proceed to procure for the Company a Personal Identification Number (PIN) from the Kenya
Revenue Authority for taxation purposes. In addition the lawyer may also procure a company seal.
There are two points to note:

A Company Limited by Guarantee means that the member of the company have agreed to an amount that will each contribute toward the debts of the
company on winding up. While a Company Limited by shares has the liability of the members limited to the extent to the extent of the share capital
not paid up.

The incorporation of the Company Limited by Guarantee involves a security check on the members that prescribe to the Memorandum. This prolongs
the registration process.
A successful completion of all these steps establishes6 the company as a body corporate with limited liability. The liability is limited either to the extent to the
uncalled up amount on the shares held by a member where the company is limited shares while it is limited to the amount guaranteed by a clause in the
Memorandum of Association. The company also enjoys perpetual succession and the power to hold land.
6
Section 16(2) Companies Act.
16
3
BARE TRUST
Bare Trust
Governing legislation
Trustees Act (Cap 167)
Trustees (Perpetual Succession) Act (Cap 164)
Overview
Also known as a simple trust
Each beneficiary has an immediate and absolute right to both capital and income
Beneficiaries have the right to take actual possession of trust property
When should this
structure be used?
Members and officers
Can be used in any situation where a trust is required
Foreign investment
restrictions
Initial steps to
establishment
No foreign investment restrictions
No minimum or maximum number of members prescribed by law but this is set out in the trust deed
Trustees may be individuals, both local and foreigners, or a body corporate in the nature of a trust corporation, or a mixture of both.
Under section 36 of the Trustee Act, in the case of settlements and dispositions on trust for sale of land the number of trustees shall not exceed
four, and, where more than four persons are named as trustees, the four first named (who are able and willing to act) shall alone be the trustees,
and the other persons named shall not be trustees unless appointed on the occurrence of a vacancy.
This section only applies to settlements and dispositions of land, and the restrictions imposed on the number of trustees do not apply (a) in the case of land vested in trustees for charitable, ecclesiastical or public purposes; or
(b) where the net proceeds of the sale of the land are held for those purposes.
Trustees prepare a Trust Deed which defines:
• the objects of the Trust;
• the Name of the Trust;
• the powers of the trustees;
• the powers to change and appoint additional trustees;
• resignation and removal of trustees; and
• meeting of trustees.
Once the trust deed has been approved by the trustees, the deed is signed and thereafter stamped.
After stamping the trust deed is presented for registration at the Registry of Documents.
17
After registration under the Registry of Documents, a certified copy of the trust deed and a petition for incorporation is prepared in the
prescribed form then lodged with the Minister responsible for Land matters for incorporation of the trust.
Please note that this is a very long process.
Fees
Taxes applicable
Reporting and
compliance
Liability of members
For incorporation K.Shs.50,000/=



Value Added Tax (where applicable)
Income Tax
The Trust may be exempted from income tax pursuant to paragraph 10 of the First Schedule to the Income Tax Act (Cap 470) if the
trust is established solely for the purposes of the relief of poverty or distress of the public, or for the advancement of religion or
education.
 The transfer of property into a charitable organisation would be exempted from payment of stamp duty if it is for the sale or transfer of
land for the construction or expansion of educational institutions.
Subject to less onerous accounting and reporting requirements than companies











Trustees are personally liable to third parties for a contractual relationship.
Third parties would not have a direct right to payment out of the trust assets.
Trustees are also liable personally for the acts of employees done in the course of their employment and within the scope of their authority.
Trustees may, however, be entitled to an indemnity out of the trust fund for liabilities properly incurred.
Further, a Trustee’s personal liability may be limited or exempted by creating express provisions in the trust instrument.
Trustees of a charity may also apply pursuant to the provisions of the Trustees (Perpetual Succession) Act for a certificate of incorporation
of the trustees as a corporate body.
If such a certificate is granted to the trustees the trustees shall thereupon become a body corporate by the name described in that certificate,
and shall have perpetual succession and a common seal, and power to sue and be sued in their corporate name.
Therefore, the combination of registering a trust under the Trustees (Perpetual Succession) Act and utilising corporate trustees may
significantly reduce the risk associated with exposing individual trustees to unlimited personal liability.
Trustees may be liable for breach of trust if, for example, they act with reference to trust property in contravention of the duties imposed on
them by the trust, in excess of those duties or negligently.
Where several trustees are implicated in a breach of trust, all such trustees will be jointly and severally liable to the person entitled to sue in
respect thereof.
However, for those trustees not implicated in such breach, they can benefit from the statutory liability exemption provisions set out in
Section 32 of the Trustee Act (Cap 167) which states that: “A trustee shall be chargeable only for money and securities actually received by
him notwithstanding his signing any receipt for the sake of conformity, and shall be answerable and accountable only for his own acts,
receipts, neglects or defaults, and not for those of any other trustee”.
18
Jurisdiction
National
Disposal of assets on
winding up
No procedure for winding up is provided. As such the trust deed should set out how the assets of the trust will be disposed in the event of it
being wound up.
Restrictions on the
activities of the entity,
i.e. commercial activities,
land holding, etc.
Under Article 65 of the Constitution, a person who is not a citizen may hold land on the basis of leasehold tenure for a term not exceeding
ninety-nine years.
A body corporate shall be regarded as a citizen only if the body corporate is wholly owned by one or more citizens.
Property held in trust shall be regarded as being held by a citizen only if all of the beneficial interest of the trust is held by persons who are
citizens. This means that land held by a trust which is not wholly owned by one or more citizens can only be held for a leasehold term of 99
years.
Under the Land Control Act, where a transaction involves the sale, lease or transfer of agricultural land in which the consent of the relevant
Land Control Board is required, the Land Control Board will not grant its consent if such sale, lease or transfer is to a non-Kenyan citizen or a
private company or co-operative society all of whose members are not citizens of Kenya.
Any dealing in land is subject to the user of that land which is set out in the document of title in respect to that land.
19
4
SOCIETY
Society
Governing legislation
Societies Act (Cap.108)
Overview
It is a flexible method of constituting an association for charitable purposes.
When should this
structure be used?
Best suited for a charity that is initiated by a group of ten or more people rather than a single founder and that relies on subscriptions, voluntary
contributions and fundraising efforts rather than on substantial endowments.
In Kenya, the type of organizations that are registered as societies include political parties, self-help groups, neighborhood associations and a
wide variety of charitable associations.
Members and officers
By its definition, the minimum number of members is ten.
No restrictions on non-Kenyan citizens.
Foreign investment
restrictions
Initial steps to
establishment
No foreign investment restrictions.




A society may be a registered society or an exempt society.
Societies are exempt when they do not have to comply with certain requirements of societies such as rendering accounts and annual returns
to the Registrar of Societies.
Applications for registration or for exemption from registration for societies are made to the Registrar of Societies together with a copy of
the society’s constitution and rules
Upon registering a society or exempting it from registration, the Registrar shall issue to the society a certificate of registration or exemption
from registration in the prescribed form.
Fees
For incorporation K.Shs.50,000/=
Taxes applicable
Income Tax
Value Added Tax (where applicable)
20
Reporting and
compliance
Notice in the prescribed form of any change of the situation of the office, or of the postal address, of a registered or exempted society must be
given to the Registrar of Societies within fourteen days of such change.
Every registered society shall keep a register of its members in such form as the Registrar of Societies may specify or as may be prescribed
containing the name and address of each member, the date of his admission to membership and the date on which he ceases to be a member.
Every registered society shall furnish annually to the Registrar of Societies, on or before the prescribed date, such returns, accounts and other
documents as may be prescribed.
Liability of members
Once the society is registered, all current and subsequent members are collectively considered to be a body corporate under the name of the
society.
The incorporated society takes on a separate legal identity distinct from its members.
Jurisdiction
National
Disposal of assets on
winding up
Upon winding up, the court appoints a Receiver who shall then be responsible for the winding up of the assets of the society.
Restrictions on the
activities of the entity,
i.e. commercial activities,
land holding, etc.
Under Article 65 of the Constitution, a person who is not a citizen may hold land on the basis of leasehold tenure for a term not exceeding
ninety-nine years.
A body corporate shall be regarded as a citizen only if the body corporate is wholly owned by one or more citizens. This means that land held
by a society which is not wholly owned by one or more citizens can only be held for a leasehold term of 99 years.
Under the Land Control Act, where a transaction involves the sale, lease or transfer of agricultural land in which the consent of the relevant
Land Control Board is required, the Land Control Board will not grant its consent if such sale, lease or transfer is to a non-Kenyan citizen or a
private company or co-operative society all of whose members are not citizens of Kenya.
Any dealing in land is subject to the user of that land which is set out in the document of title in respect to that land (ie. this is a form of
restriction in land holding).
21
Establishing a Common Law (non-Corporate) Trust
Trusts are common forms of association intended for both profit making and not-for-profit. Trusts are regulated under the Trustee Act Chapter 167 Law of
Kenya. The law allows a lot of room for the formulator of the trust deed to set out the nitty-gritty of the trust. A trust is formed as follows:
1.
Identify the name of the trust being created.
2.
Identify the persons that will be the first trustees (full names and addresses).
3.
Identify clearly and accurately the property that will constitute the trust funds
4.
Identify clearly and accurately the people or class of persons that will be the beneficiaries of the trust fund.
5.
Based on the above information, the Trust Deed (which is the constitution of the Trust) is prepared. In addition to the information in 1 – 4, the Deed should set out
the following to avoid application of the default provisions of the Trustee Act:
a.
The person who may appoint new or additional trustees and the extent of that power
b.
The reasons for the removal of a trustee
c.
The procedure for the amendment of the trust deed
d.
Powers of investment and nature of investments that might be made by the trustees or their agents. Care needs to be taken to ensure that the power granted
under the deed does not purport to grant power to allow investments prohibited by the Trustee Act.
e.
Power of appointment of official of the trust
f.
Extent of the powers of the trustees
g.
Dissolution and winding up procedure and powers
h.
In the case of a trust set up for charitable purposes, the trust ought be formed as an irrevocable trust
The Trustees will then be required to sign the Trust Deed which is then assessed for stamping and on the payment of a fee, it is stamped. Once this is done,
the trust deed is presented for registration under the Registration of Documents Act (Cap. 285). The process of establishing a common law (non - corporate)
trust ordinarily ends here.
22
This registration does not confer corporate status and the trustees will be liable in their individual capacity even though they may seek indemnity from the
Trust.
Establishing a Common Law (Corporate) Trust
If a corporate trust is desired, then after completing the steps for a common law trust, the founders must application for incorporation under section 5 (1) of
the Trustees (Perpetual Succession) Act (Cap. 164, Laws of Kenya). The objects of the trust must be limited to religious, educational, literary, scientific,
social, athletic or charitable purpose and should be not-for-profit.7 The minister having regard to the extent, nature and objects and other circumstances of the
trust concerned, may grant a certificate accordingly, subject to such conditions or directions generally as he thinks fit to insert in the certificate.8 The
conditions may relate to the qualifications and number of the trustees, their tenure and avoidance of office, the mode of appointing new trustees, the custody
and use of the common seal, the amount of movable or immovable property which the trustees may hold, and the purposes for which that property may be
applied.9
The incorporation of the trust in this manner makes the trustees a body corporate by the name described in the certificate with perpetual succession and a
common seal, and power to sue and be sued in their corporate name and, subject to the conditions and directions contained in the certificate, to hold and
acquire, and by instruments under the common seal to convey, transfer, assign, charge and demise any movable or immovable property.10
7
Section 3(1) of the Trustees (Perpetual Succession) Act.
8
Section 3(2) of the Trustees (Perpetual Succession) Act.
9
Section 3(2) of the Trustees (Perpetual Succession) Act.
10
Section 3(3) of the Trustees (Perpetual Succession) Act.
23
5
NON-GOVERNMENTAL ORGANISATION
Non-governmental organisation
Governing legislation
Formerly governed by the Non-Governmental Organizations Co-Ordination Act, 1990.
Now governed by the Public Benefit Organisation Act Act No. 18 of 2013. Commencement by notice but pursuant to the transitional
provisions under the Fifth Schedule of the Act, NGOs registered under the repealed law (Non-Governmental Organizations Co-Ordination Act,
1990) are deemed to be registered under the new law and have up to 1 year to seek registration as a Public Benefit Organization under the new
law.
Overview
It is a private voluntary grouping of individuals or associations, not operated for profit or for other commercial purposes but which have
organized themselves nationally or internationally for the benefit of the public at large and for the promotion of social welfare, development
charity or research in the areas inclusive of, but not restricted to, health, relief, agriculture, education, industry and the supply of amenities and
services.
When should this
structure be used?
Incorporated for public benefit and to promote social welfare, health, relief, agriculture, education, industry and the supply of amenities and
services.
Members and officers
No restrictions on non-Kenyan citizens.
Foreign investment
restrictions
Initial steps to
establishment
No foreign investment restrictions.
Applications for registration must be submitted to the executive director of the Non-Governmental Organizations Co-ordination Board in the
prescribed form. An application for registration is made by the chief officer of the proposed organization and it must specify (a) other offices of the organization;
(b) the head office and postal address of the organization;
(c) the sectors of the proposed operations;
(d) the districts, divisions and locations of the proposed activities;
(e) the proposed average annual budgets;
(f) the duration of the activities;
(g) all sources of funding;
(h) the national and international affiliation and the certificates of incorporation
Upon registration a certificate of registration is issued.
24
Fees
For incorporation K.Shs.50,000/=
Taxes applicable
Income Tax (subject to the exemptions under paragraph 10 of the first schedule of the Income Tax Act
Section 138 (1) of The Customs and Excise Act (Cap 472) allows the Minister responsible for Finance to remit in whole or in part duty payable
by any person on certain goods, aircraft, vessels or vehicles imported by that person if he is satisfied that it is in the public interest to do so if
such goods are donated or purchased for donation by any person to non-profit making organizations or institutions approved by the
Government, for their official use or for free distribution to poor and needy persons, or for use in medical treatment, educational, religious or
rehabilitation work.
The Non-Governmental Organizations Co-Ordination Act, 1990 states in Sections 29 and 30 of this Act that a non-governmental organisation
may be entitled to various tax exemptions (upon making the necessary applications and procuring the necessary consents) relating to:
 duty in respect of imported goods or equipment;
 value added tax on goods and services required to meet the Organization’s objectives;
 value added tax on income generating activities; and
 Income tax for expatriate employees.
Reporting and
compliance
Books of records of account of its income, expenditure, assets and liabilities shall be kept with the Non-Governmental Organizations Coordination Board.
Liability of members
Body corporate capable of suing and being sued in its corporate name
Jurisdiction
National
Disposal of assets on
winding up
Restrictions on the
activities of the entity,
i.e. commercial activities,
land holding, etc.
No procedure for winding up is provided. As such the procedure for disposal of assets should be set out in the constitutional documents




Under Article 65 of the Constitution, a person who is not a citizen may hold land on the basis of leasehold tenure only, and any such lease,
however granted, shall not exceed ninety-nine years.
A body corporate shall be regarded as a citizen only if the body corporate is wholly owned by one or more citizens. This means that land
held by an NGO which is not wholly owned by one or more citizens can only be held for a leasehold term of 99 years.
Under the Land Control Act, where a transaction involves the sale, lease or transfer of agricultural land in which the consent of the relevant
Land Control Board is required, the Land Control Board will not grant its consent if such sale, lease or transfer is to a non-Kenyan citizen
or a private company or co-operative society all of whose members are not citizens of Kenya.
Any dealing in land is subject to the user of that land which is set out in the document of title in respect to that land.
25
Establishing a Non-Governmental Organisation (NGO)
A Non-Governmental Organization is registered under the Non-Governmental Organizations CoOrdination Act, 1990. An NGO is defined under section of the Act as “a private voluntary grouping of
individuals or associations, not operated for profit or for other commercial purposes but which have
organized themselves nationally or internationally for the promotion of social welfare, development,
charity or research through mobilization of resources”.
11
NGOs are regulated by the NGO
Coordination Bureau (“the Bureau”).
There is a distinction under the Act between a National NGO and an International NGO. “National
Non-Governmental Organization” is an NGO “registered exclusively in Kenya with authority to
operate within Kenya.12 An International NGO is “a Non- Governmental Organization with the
original incorporation in one or more countries other than Kenya, but operating within Kenya under a
certificate of registration.” 13
Despite a distinction in the definition of the National NGO and an International NGO, the registration
of an International and a national NGO is the same. The process is as follows:
1.
14
Application is made for approval of the name in which the organization is to be registered. The name
is reserved and the applicant notifies according if the name is in the opinion of the director desirable.
2.
The registration is undertaken by Application to the Executive of the Bureau.
16
15
The application is made
by the chief officer. Such application must specify:
a.
Who the other officers of the organization are;
b.
The head office and postal address of the organization;
c.
The sectors of the proposed operations;
d.
The districts, divisions and locations of the proposed activities;
e.
The proposed average annual budget;
f.
The duration of the activities;
g.
All sources of funding; and
h.
The national and international affiliation and certificates of incorporation;
11
Section 2 of the Non-Governmental Organizations Co-Ordination Act, 1990.
12
Section 2 of the Non-Governmental Organizations Co-Ordination Act, 1990.
13
Section 2 of the Non-Governmental Organizations Co-ordinations Act, 1990.
14
Regulation 8 of the Non-Governmental Organizations Co-ordination Regulations, 1992.
15
Regulation 8(3) of the Non-Governmental Organizations Co-ordination Regulations, 1992.
16
Section 10(3) of the Non-Governmental Organizations Co-Ordination Act 1990, and Regulation 9(1).
26
The application must be signed by the chief officer of the intended organization and must be
accompanied by:
(i)
a copy of the minutes of the meeting of the proposed organization authorizing the filing of the
application;
(ii)
a copy of the constitution of the proposed organization, specifying the Name of NonGovernmental Organization, object for which the Non-Governmental Organization is
established, administrative units, custody, use and investment of the funds and property of the
Non-Governmental Organization and the designation of the persons responsible for them,
purpose for which the funds may be used, persons to whom membership is open, Structure
and management of the Organization, quorum and meetings, financial year, manner of
amending the constitution and dissolution mechanisms.
(iii)
a notification of the situation of the registered office and postal address of the proposed organization of
the proposed organization.
The director may request other information as the Board may prescribe.
If the Board approves the application for registration, the Director registers the proposed organization
by entering in the register of organizations the name of the organization, postal address, physical
address, classification by sector and date of registration in Kenya.17 The Board then issues a certificate
of registration.18
Upon registration the NGO becomes:19
a.
a body corporate
b.
with capacity to sue and be sued;
c.
Able to take, purchase or otherwise acquire, hold, charge or dispose of movable and
immovable property
d.
enter into contracts; and
e.
do or perform all such other things or acts necessary for the proper performance of its
functions under the Act, which may lawfully be done or performed by a body corporate.
The NGO will in the near future be superseded by a new legal regime and transform into a Public
Benefits Organization. For the entity to survive the expected change it must re-register under the new
17
Regulation 10, Section 2 of the Non-Governmental Organizations Co-ordinations Act, 1990.
17
Regulation 10 of the Non-Governmental Organizations Co-ordination Regulations, 1992.
18
Section 12 (1) of the Non-Governmental Organizations Coordination Act 1990; and Regulation 11 of the
Non-Governmental Organizations Coordination Regulations, 1992.
19
Section 12(3) of the Non-Governmental Organizations Coordination Act 1990.
27
regime. It is important to note that the Public Benefits Organizations Act 2013 (PBO) intended
to repeal the Non-Governmental Organizations Co-Ordination Act, 1990 is awaiting publication
in the Kenya gazette and commencement. Once the PBO comes into force, all NGO will have to
re-register or risk losing their NGO registration status. The information required to register or
re-register under the PBO is not dissimilar to that under the current regime. The biggest
advantage with the PBO is that tax exemptions that have to be applied for under the current
regime accrue automatically.
28
6
JOINT VENTURE
JOINT VENTURES IN KENYA
Governing legislation
Overview
1.
2.
3.
4.
Companies Act (Cap 486) if the parties wish to establish a separate legal entity as a vehicle for the joint venture
Partnership Act (Cap 29) if the parties wish to carry out the joint venture as partners
Limited Liability Partnership Act (Act No. 42 of 2011) if the parties wish to limit their liability in the partnership
Law of Contract Act (Cap 23)
A joint venture is a commercial arrangement between two or more economically independent natural or legal persons who combine
property and expertise in order to carry out a single business enterprise while maintaining a joint proprietary interest, a joint right to
control and a sharing of profits and losses.
The parties in a joint venture must agree on:
 The scope and the purpose of the joint venture
 The ‘vehicle’ to be used to carry out the joint venture (eg. company, partnership)
 The management of the joint venture
 The division of power between the parties
 The capitialisation and financing of the company including the respective contributions of the parties to the venture
 The terms on which any party can transfer its share to a third party
 How to deal with disputes and deadlock between the parties
When should this
structure be used?
A joint venture is appropriate for:
 Research and development projects
 Natural resource exploration and exploitation
 Engineering and construction
 Production and manufacturing
Members and officers
Company
 The minimum number of members is two (2) for a private company or seven (7) for a public company.
 There are no restrictions on non-Kenyan citizens.
Partnership
 There is no maximum number of partners for partnerships, nor any restrictions on non-Kenyan citizens.
29
Limited Liability Partnership
 Section 26 of the Limited Liability Partnership Act provides that a limited liability partnership is required to have at least two partners.
 Section 27 provides that it must have at least one manager who is resident in Kenya.
Foreign investment
restrictions
Company, Partnership and Limited Liability Partnership
There are no foreign investment restrictions, however:
 Approval from the Kenya Investment Authority is required for new investments
 If the investment is going to have an adverse impact on the environment, approval from the National Environment Management
Authority (NEMA) is required
 If the investment will have an adverse impact on health, approval from the relevant Public Health Authorities is required (eg. Ministry
of Health, County Health officer for the relevant county)
 Approvals from parent ministries for investments in restricted areas include:
i.
Investment in forest products requires clearance from the Ministry of Environment and natural resources
ii.
Investment in energy and petroleum products requires clearance from the Ministry of Energy
iii.
Investment in mining requires clearance from the Ministry of Mining
iv.
Investment in the tourism industry requires clearance from the Ministry of Tourism
Initial steps to
establishment
Company
 Members propose a name and objects of the Company
 Provide details of the addresses, nationality and occupations of the persons proposed to be the directors of the company
 Details of the person who is to be the company secretary
 Details of the registered office of the company, that is its postal and physical address (plot and section number and road name)
 Suitable Memorandum of Articles must be prepared and filed
 The amount of money that each member undertakes to contribute must be stated in the Memorandum.

The Memorandum of Articles must be stamped and registered with the Registrar of Companies.

Upon incorporation of the company, the Registrar will issue a Certificate of Incorporation.
Partnership
 Partners propose name of the firm
 Partners prepare the partnership deed which should, amongst others, provide for:
i.
Names of the partners and their capacity;
ii.
Date of commencement and dissolution of the partnership;
iii.
Assets of the partnership;
30
iv.
v.
vi.
vii.
viii.
Details of the registered office of the partnership;
The capital of the partnership and the individual partners;
The salary and profit entitlement of the partners;
The banking arrangements and the right to draw cheques;
The partnership accounts.
Limited Liability Partnership
 Section 17 of the Limited Liability Partnership Act provides that in order to register a limited liability partnership, a statement in the
prescribed form with the following details must be lodged with the Registrar of Limited Liability Partnerships:
(a) The name of the partnership
(b) The general nature of the proposed business
(c) The proposed registered office of that partnership
(d) The name, identity document (if any), nationality, and usual place of residence of each person who will be a partner

Fees
(e) The name, identity document (if any), nationality, and usual place of residence of each person who will be a manager of the
partnership
The statement must be signed by each person who proposes to be a partner of the proposed limited liability partnership.

Under section 18 of the Act, once the statement lodged under section 17 has been received by the Registrar of Limited Liability
Partnerships and he is satisfied that the requirements of the Act have been complied with, the Registrar shall register the statement and
issue a certificate of registration.

Under Section 7 of the Limited Liability Partnership Act, upon successful registration the limited liability partnership becomes a
separate legal entity from its partners capable of suing and being sued, acquiring, owning, holding and developing or disposing of
movable and immovable property.
Company
For incorporation between K.Shs.75,000/= - K.Shs.100,000/= plus VAT and costs.
Partnership
For establishment of the partnership K.Shs.50,000/= plus VAT and costs.
Limited Liability Partnership
For establishment of the limited liability partnership between K.Shs.75,000/= - K.Shs.100,000/= plus VAT and costs.
31
Taxes applicable
Value Added Tax (where applicable)
Income Tax
Stamp Duty
Excise Duty (where applicable)
PAYE
Customs Duty
Compensating Tax
Reporting and
compliance
Company
 If the company has share capital, it must file an annual return like any other limited liability company
 If it has no share capital, it must file an annual return stating the address of the registered office.
 If the register of members is not kept at the registered office, the address of the place where it is kept must be stated.
 The particulars of the directors and the secretary, which are required to be kept in the register of directors and secretaries.
 Particulars of the total amount of the company’s indebtedness in respect of all mortgages and charges required to be registered with the
Registrar of Companies
Partnership
Partnerships are subject to less onerous accounting and reporting requirements than companies.
Limited Liability Partnership
A Limited Liability Partnership must:
(a) Have a manager
(b) Lodge an annual declaration by its manager that the partnership is either solvent or insolvent
(c) Keep proper accounting records
(d) Have a registered office in Kenya
(e) All documents relating to the partnership business when issued must bear the name and registration number of the partnership and a
statement that it is registered with limited liability.
32
Liability of members
Company
 Members have limited liability – they are only liable for the specified amount that they undertake to contribute towards the assets of
the company in the event of its being wound up (ie. the distribution or liquidation of assets after dissolution).
 Liability extends for one year after a member ceases to be one.
Partnership
 Section 11 of the Partnership Act provides that every partner in a firm is jointly liable with the other partners for all debts and
obligations of the firm incurred while s/he is a partner, but a person who is admitted as a partner into an existing firm does not thereby
become liable to the creditors of the firm for anything done before s/he became a partner.
Limited Liability Partnership
 There are no clear lines on the extent of limitation of liability and it appears that there are instances where a partner could be found
liable. Section 10 of the Limited Liability Partnership Act provides that a limited liability partnership shall be solely obligated to an
issue arising from contract, tort or otherwise. A person is not personally liable, directly or indirectly, for such an obligation only
because the person is a partner of the limited liability partnership. However, this shall not affect the personal liability of a partner in
tort for the wrongful act or omission of that partner.

If a partner of a limited liability partnership is liable to a person other than another partner of the partnership as a result of a wrongful
act or omission of that partner in the course of the business of the limited liability partnership or with its authority, the partnership is
liable to the same extent as that partner. The liabilities of a limited liability partnership are payable out of the property of the limited
liability partnership.
Jurisdiction
Company, Partnership and Limited Liability Partnership
Kenya
Disposal of assets on
winding up
Company
 After a winding-up order has been made, the liquidator takes into custody or under control all the property to which the company is or
appears to be entitled to.
 The liquidator may, after giving such indemnity, if any, as the court may direct, bring or defend in his official name action or other
legal proceeding which relates to that property or which it is necessary to bring or defend for the purpose of effectually winding up the
company.

Under section 311 of the Companies Act, the following shall be paid in priority to all other debts:
33
i.
ii.
iii.
iv.
All taxes and local rates due from the company and having become due and payable within twelve months
All Government rents not more than one year in arrear
All wages or salary of any clerk or servant of the company
All retirement benefits contributions of any clerk or servant of the company
Partnership
Under section 48 of the Partnership Act, the following rules apply on dissolution of a partnership:
(a) Losses, including losses and deficiencies of capital, shall be paid first out of profits, next out of capital, and lastly, if necessary, by the
partners individually in the proportion in which they were entitled to share profits
(b) The assets of the firm, including the sums, if any, contributed by the partners to make up losses or deficiencies of capital, shall be applied in
the following manner and order (i) In paying the debts and liabilities of the firm to persons who are not partners therein
(ii) In paying to each partner rateably what is due from the firm to him/her for advances as distinguished from capital
(iii) In paying to each partner rateably what is due from the firm to him/her in respect of capital
(iv) The ultimate residue, if any, shall be divided among the partners in the proportion in which profits are divisible
Limited Liability Partnerships
 The Fifth Schedule to the Act provides for winding up of limited liability partnerships.
 It may be wound up by the court on an application by the partnership or a creditor. It may also be wound up voluntarily by a resolution
passed by all the partners. However, the requirement for an application to the Court applies even if the limited liability partnerships
being wound up voluntarily.
 Paragraph 47 of the Fifth Schedule to the Act provides that on completion of the winding up of a limited liability partnership, the
liquidator shall, unless the limited liability partnership agreement otherwise provides, distribute the property among the partners
according to their rights and interests in the partnership, but this is subject to the provisions of the Act regarding the making of
preferential payments.
 Paragraph 58 of the Fifth Schedule provides that all proper costs, charges and expenses of, and incidental to, the winding up of a
limited liability partnership (including the remuneration of the liquidator) are payable out of the assets of the partnership in priority to
all other claims.
Restrictions on the
activities of the entity,
i.e. commercial
activities, land
holding, etc.
Company
 Under Article 65 of the Constitution, a person who is not a citizen may hold land on the basis of leasehold tenure for a term not
exceeding ninety-nine years.
 A corporate body shall be regarded as a citizen only if the corporate body is wholly owned by one or more citizens. This means that
land held by a company that is not wholly owned by one or more citizens can only be held for a leasehold term of ninety-nine
years.
 Under the Land Control Act, where a transaction involves the sale, lease or transfer of agricultural land in which the consent of the
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
relevant Land Control Board is required, the Land Control Board will not grant its consent if such sale, lease or transfer is to a nonKenyan citizen or a private company or co-operative society all of whose members are not citizens of Kenya.
Any dealing in land is subject to the user of that land, which is set out in the document of title in respect to that land. This is another
form of restriction in land holding.
Partnerships
 Under Article 65 of the Constitution, a person who is not a citizen may hold land on the basis of leasehold tenure for a term not
exceeding ninety-nine years. This means that if some of the partners in a partnership are not Kenyan citizens, then any land owned by
the partners can only be held for a leasehold term of ninety-nine years.
 Under the Land Control Act, where a transaction involves the sale, lease or transfer of agricultural land in which the consent of the
relevant Land Control Board is required, the Land Control Board will not grant its consent if such sale, lease or transfer is to a nonKenyan citizen or a private company or co-operative society all of whose members are not citizens of Kenya.
 Any dealing in land is subject to the user of that land which is set out in the document of title in respect to that land. This is another
form of restriction in land holding.
Limited Liability Partnership
 Under Article 65 of the Constitution, a person who is not a citizen may hold land on the basis of leasehold tenure for a term not
exceeding ninety-nine years. This means that if some of the partners in a limited liability partnership are not Kenyan citizens, then any
land owned by the partners can only be held for a leasehold term of ninety-nine years.
 Under the Land Control Act, where a transaction involves the sale, lease or transfer of agricultural land in which the consent of the
relevant Land Control Board is required, the Land Control Board will not grant its consent if such sale, lease or transfer is to a nonKenyan citizen or a private company or co-operative society- all of whose members are not citizens of Kenya.
 Any dealing in land is subject to the user of that land which is set out in the document of title in respect to that land. This is another
form of restriction in land holding.
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