The constitution of Kenya provides 2 major types of companies in Kenya.

1. Statutory Companies

These types of companies are incorporated by a special act of parliament and the initial capital is provided for by the treasury.  The company has no shareholders but can make profits and operate under stated commercial laws. When it accrues losses, the government can come to its rescue and the creditors cannot make an application to the court for the company to be dissolved.  Examples of such companies in Kenya are the Kenya Power Limited Company (KPLC), Kengen and the Kenya Tea Development Agencies (KTDA).

2. Registered Companies

These are companies that are registered under the companies act. This is where the mass of all the Kenyan companies fall under.  Registered companies can be classified into two sets: Unlimited companies and limited companies.

a) Unlimited companies

In this type of company set up, there are no limitations on the liability of the members to pay the debts which means that they are jointly and personally liable for the debts in case of a winding-up scenario. If the company needs more money to pay its debts or liabilities on winding up, it can call on the shareholders to contribute whatever amount is necessary to make up for the shortfall.

Here are the instances where this kind of company is necessary;

• Where the risk of insolvency is small.
• Where the owners do not wish to publicly file financial information and are keen on secretion in relation to financial matters.
• The company will operate in a field where limited liability is frowned upon.  
• Where it can be seen that reductions in the capital may become desirable.

b) Limited companies  

The owners or shareholders keep their own assets and finances separate from the entity. The liability of the shareholders is limited to the extent of the amount of capital they had originally invested or guaranteed in the company as per the memorandum of association which means that they are only liable up to the amount they invested and no more. This is a very suitable arrangement as one can get involved without risk to personal wealth.

They can either be limited by shares or by guarantee

Limited by Guarantee

If the company is being wounded up, the Memorandum of association provides for the liability on the part of its members to contribute a fixed sum towards its debts. The shareholders put up a guarantee to pay an amount so as to pay up the debt. The following are instances where one should register it as a company limited by guarantee.  

• When there is no immediate need for capital.
• If you are looking to avoid the need of having to transfer shares every time a member leaves or joins.
• When you want to limit the liability of the members.
• Incorporation is necessary or desirable.

Limited by shares

The liability of its members is limited by the memorandum to the amount if any, unpaid on the shares respectively held by them.

NB

Below is a discussion in greater detail on the two types of Companies namely: Limited and Unlimited Companies. The companies are limited in the sense that they are held accountable to the debts of the Company to a certain extent. Such companies may therefore be limited by guarantee or share capital.

• Unlimited Companies

For unlimited companies there is no limitation on the liability of members to pay the debts of the company and the members are jointly and personally liable for the debts in case of winding up. However such companies are rarely incorporated nowadays but they may be necessary

1. Where the risk of insolvency is small; or
2. The company is to operate in a field where limited liability is frowned upon; or secrecy in relation to financial affairs is important; or
3. Where it can be foreseen that reductions in capital may become desirable.

The current Companies Act, Cap 486, allows the incorporation of both public and private unlimited companies by virtue definition and also re-registration of an unlimited Company as a limited company.

The new Companies Act, No. 17 of 2015 retains this type of companies although with restrictions on the exemption to file annual returns with the Registrar. Further, only unlimited private companies may be formed under the new Act. There are procedures for conversion of a private limited company to an unlimited private company or vice versa and for conversion of a public company to an unlimited company.

• Limited Companies

A limited company is a type of company which when set-up allows an entrepreneur to keep their own assets and finances separate from the business itself. This means that people who have invested in the business (the shareholders) are only responsible for any company debts up-to the amount that they have invested and no more. It is therefore a good way for a business to get investment without risk to a personal wealth. Companies may be limited by shares or guarantee.

A company is said to be limited by shares if the liability of its members is limited by the memorandum to the amount, if any, unpaid on the shares respectively held by them. A company is said to be limited by guarantee if the liability of its members is limited by the memorandum to such amount as the members may respectively thereby undertake to contribute to the assets of the company in the event of its being wound up while one is a member, or within one year after one ceases to be a member, for payment of the debts and liabilities of the company contracted before he ceases to be a member, and of the costs, charges and expenses of winding up, and for adjustment of the rights of the contributories among themselves, such amount as may be required, not exceeding a specified amount.

• Companies Limited by shares

Two categories of companies fall in this sub-part. These are Public companies limited by shares and the Private companies limited by shares. These categories of company are mostly formed in the current regime. The distinctive features are as shown in the table below: Please note the distinctions are as provided in the current Companies Act, Cap 486 and in the new Companies Act, No. 17 of 2015 which is yet to become operational.

SALIENT FEATURES & DISTINCTIONS AS PER COMPANIES ACT, CAP 486

DISTINCTIONS & SALIENT FEATURES AS PER COMPANIES ACT, 2015

• Companies Limited by Guarantee  

A company may be limited by guarantee. Such a company is one whereby the company’s memorandum of association provides for liability on the part of its members to contribute a fixed sum of money towards its debts, should the company be wound up. This form of company is most useful where:

1. Incorporation is necessary or desirable;
2. There is no immediate need for capital to carry out the objects of the company; and
3. It is desired to limit the liability of the members.

Associations not for profit (for example, clubs, and associations of traders for trade protection or information) are most commonly incorporated as this type of company. It is also appropriate for professional, trade and research associations, and clubs supported by annual subscription. It may also be used for registration of charitable and not for profit organizations. Such a structure is particularly useful where it is desirable to avoid the need to transfer a share every time a member leaves or joins.

In the current legal regime, Companies Act Cap 486, one may establish either a Company limited by guarantee with or without shares. However, Companies Act, 2015 would only allow companies limited by guarantee without share capital to be established. However, the already incorporated