Tuesday, 27 September 2011

POST-INCORPORATION REQUIREMENTS FOR A LIMITED LIABILITY COMPANY IN KENYA

INTRORUDCTION

Compliance with the law is essential to avoid risks/penalties associated with non-compliance, improve the company's public image, and it's generally good for business. The purpose of this advice therefore is to apprise you of the post-incorporation compliance requirements expected of any limited liability company with a view of ensuring that your company is in full compliance with the law.

THE ADVICE
  
Ordinarily, incorporation of a Limited Liability Company is complete when the Registrar of Companies issues a Certificate of Incorporation, duly stamped with the proper government seal and signed by the registrar. An incorporated company is seized of power and right to transact business like any other ordinary human persons.

However, that alone is not the final step in formation and operationalization of a company. Companies being artificial person with a personality distinct from its ‘owners’, capable of making decisions and transact business they are regulated by principally the Companies Act, and the Memorandum and Articles of Association of the Company.

Below are a number of concerns for which a limited liability company must comply with subsequent to its incorporation:

1.       COMMON SEAL

The company will require a common seal for executing certain types of documents, for example, e.g. land charges or mortgages, office leases, transfers of land or shares, board resolutions.  Common seals are manufactured locally at a cost of approximately Kshs.3,000 and we should be pleased to make the necessary arrangements on your behalf upon proper instructions. The company seal must properly secured to avoid instances of unauthorized execution of document. This is because a company signs documents by way of a company seal, such that any properly sealed document may be considered valid in law.

2.       LICENCES

Most companies will require some form of government or local authority licence before commencing business depending upon the nature of the business.  For instance, if the company intends to undertake insurance business, banking business, films production, telecommunication services, public transport, waste disposal, water supply services, etc, appropriate licences must be applied for from the relevant government authority. We should be pleased to provide specific advice on the licences which may be required upon proper instruction.

3.       OTHER REGISTRATIONS

There will also be a number of tax registrations which must be attended to. These include:

a)       obtaining of a PIN number;
b)       various employee related tax registrations (Pay As You Earn, National Social Security Fund, National Hospital Insurance Fund and Local Authority Service Charge);
c)       value added tax, where a company has traded or expects to have a gross turnover of Kshs. 5 Million and above in the next coming twelve (12) months. Please note that the VAT Certificate has been incorporated in the new generation PIN Certificates, as such, it is not a separate document on its own.

We should be pleased to provide specific advice and actually obtain these registrations on behalf of the company upon proper instruction, save for PIN Certificate which enclosed herewith under separate covers.

4.       DISPLAY OF THE CERTIFICATE

The Certificate of Incorporation and any other licence must be displayed at the registered office.

5.       MINUTES

A company must cause minutes of all proceedings of general meetings, and of all proceedings at meetings of its directors, to be entered in books (Minute Books) kept for that purpose. The minutes must be signed by the Chairman and the Company’s Secretary or any two directors. If a company fails to comply with these requirements, the company and every officer of the company who is in default shall be liable to a default fine.

6.       BOARD RESOLUTIONS

A company, being an artificial person makes decisions through the Board. The deliberations of the Board must be reduced into Minutes. It is from such minutes that Resolutions are extracted. The Board Resolutions constitute binding decisions of the company as made by the Board of Directors or annual general meeting. However, the binding nature or enforceability of resolutions will depend on the following:

1.       Whether the persons at the meeting making the resolutions constituted a quorum as stipulated under the Articles of Association of the Company;

2.       Whether the persons at the meeting and who made or voted on the resolutions had the capacity to vote in such a meeting;

3.       Whether the Board has the mandate as the Memorandum and Articles of Association of the Company, as read with other legal provisions, to make the decision and/or resolutions so made (a decision which is prohibited, expressly or impliedly by law and by the companies constitutional document are ultra-vires, null and void for all intents and purposes) – for instance, the Board may not make a decision to borrow money if the Memorandum and Articles of Association does not grant such powers to the company or its directors;

4.       Whether the resolutions are properly signed and seal by the Companies Secretary or at least two directors for the time being of the Company;

We should be able to draft the necessary Board resolutions on your behalf upon proper instructions, from time to time. Our Company Secretaries department, Hill Team Secretaries will provide you with the necessary professional company secretarial services upon instructions. In this regard, we shall require the company to provide us with the subject matter and the specific decisions that the company intends to make.

7.       ANNUAL GENERAL MEETINGS

By law, every company is obliged, in each year, to hold a general meeting as its annual general meeting in addition to any other meetings in that year. The company must categorize the meeting as such in the notices calling it, and not more than fifteen months should elapse between the date of one annual general meeting of a company and that of the next.

Non-compliance with these mandatory requirements entitles the Registrars of Companies to fine the company and every officer for the time being of the company a fine not exceeding two thousand shillings.

8.       CALLING OF MEETINGS

The calling of meetings (other than adjourned meeting) must be preceded by a written notice of not less than twenty one (21) days.

The notices must be served on every member of the company in the manner in which notices are required to be served as stipulated by the Company’s Articles of Association.

Two or more members of the company holding not less than one-tenth of the issued (taken) share capital may call a meeting.

9.       QUORUM

Two members personally present may form a quorum for purposes of conducting business of the meeting. However, the Articles of Association will often dictate the quorum at such number as the company may decide.

10.    PROXIES

A proxy is a person appointed to attend a meeting in the place of another. Any member of a company entitled to attend and vote at a meeting of the company shall be entitled to appoint another person (whether a member or not) as his proxy to attend and vote instead of him, and a proxy appointed to attend and vote instead of a member shall also have the same right as the member to speak at the meeting:

It should however be noted that unless the Articles otherwise provide, a member of a private company shall not be entitled to appoint more than one proxy to attend on the same occasion; and a proxy shall not be entitled to vote on issues except on a election.

Every notice calling a meeting must contain, with reasonable prominence, a statement that a member entitled to attend and vote is entitled to appoint a proxy and that a proxy need not also be a member. Default in compliance with this requirement as respects any meeting makes every officer of the company who is in default to be liable to a fine not exceeding one thousand shillings.

11.    BOOKS OF ACCOUNT

Every company is obliged to keep proper books of account with respect to:

a)       all sums of money received and expended by the company and the matters in respect of which the receipt and expenditure takes place;
b)       all sales and purchases of goods by the company;
c)       the assets and liabilities of the company:

Keeping proper books of account means keeping such books as are necessary to give a true and fair view of the state of the company's affairs and to explain its transactions. The books of account are to be kept at the registered office of the company or at such other place as the directors think fit, and are to be open for inspection by the directors at all times.

The Companies Act provides that if any person being a director of a company fails to take all reasonable steps to secure compliance by the company with the requirement as to keeping of proper books of account, or has by his own wilful act been the cause of any default by the company, he shall, in respect of each offence, be liable to imprisonment for a term not exceeding twelve (12) months or to a fine not exceeding ten thousand (Kshs.10,000) shillings or to both.

12.    FILING OF ANNUAL RETURNS

Section 125 of the Companies Act stipulates that every company having a share capital shall, once at least in every year, make a return, and the said return shall be in the form and shall be made up to the date of the fourteenth day after the date of the annual general meeting.

12.1.Time of Completing Return

The annual return is be completed within forty-two (42) days after the annual general meeting for the year of the annual return, and the company must within such period deliver to the registrar a copy of the annual return, signed both by a director and by the secretary of the company. If a company fails to comply with this requirement, the company and every officer of the company who is in default shall be liable to a default fine as may be deemed fit by the registrar. It should be noted that the term "officer" as used here includes any person in accordance with whose directions or instructions the directors of the company are accustomed to act.

12.2.Content and Form of Annual Return

The content of an Annual Return of a company having share capital includes as follows:

1.       The situation of the registered office of the company and the company's registered postal address;
2.       If the register of members is, under the provisions of the Companies Act, kept elsewhere than at the registered office of the company, the address of the place where it is kept;
3.       If any register of holders of debentures of the company or part of any such register is, under the provisions of the Companies Act, kept elsewhere than at the registered office of the company, the address of the place where it is kept;
4.       A summary, distinguishing between shares issued for cash and shares issued as fully or partly paid up otherwise than in cash, specifying the following particulars—

                               i).            the amount of the share capital of the company and the number of shares into which it is divided;
                             ii).            the number of shares taken from the commencement of the company up to the date of the return;
                           iii).            the amount called up on each share;
                           iv).            the total amount of calls received;
                             v).            the total amount of calls unpaid;
                           vi).            the total amount of the sums (if any) paid by way of commission in respect of any shares or debentures;
                         vii).            the discount allowed on the issue of any shares issued at a discount or so much of that discount as has not been written off at the date on which the return is made;
                       viii).            the total amount of the sums (if any) allowed by way of discount in respect of any debentures since the date of the last return;
                           ix).            the total number of shares forfeited;
                             x).            the total amount of shares for which share warrants are outstanding at the date of the return and of share warrants issued and surrendered respectively since the date of the last return, and the number of shares comprised in each warrant.

5.       Particulars of the total amount of the indebtedness of the company as at the date of this return in respect of all mortgages and charges which are required to be registered with the registrar under the Companies Act.

6.       A list:

                               i).            containing the names and postal addresses of all persons who, on the fourteenth day after the company's annual general meeting for the year, are members of the company, and of persons who have ceased to be members since the date of the last return or, in the case of the first return, since the incorporation of the company;
                             ii).            stating the number of shares held by each of the existing members at the date of the return, specifying shares transferred since the date of the last return (or, in the case of the first return, since the incorporation of the company) by persons who are still members and have ceased to be members respectively and the dates of registration of the transfers;
                           iii).            if the names aforesaid are not arranged in alphabetical order, having annexed thereto an index sufficient to enable the name of any person therein to be easily found.

7.       All such particulars with respect to the persons who at the date of the return are the directors of the company and any person who at that date is the secretary of the company as are by this Act required to be contained with respect to directors and the secretary respectively in the register of the directors and secretaries of a company.

The form of annual return is also stipulated by the Act. Given the complexity of this document, it is advisable that the same be prepared by a qualified Company Secretary. Upon proper instruction, our Company Secretarial Department, Hill Team Secretaries can undertake the preparation and filing of your annual returns as and when necessary.

Fundamentally, however, a company need not make a return in the year of its incorporation.

12.3.Documents to be Annexed to Annual Return

There shall be annexed to the annual return:

a)       a copy, certified both by a director and by the secretary of the company to be a true copy, of every balance sheet laid before the company in general meeting during the period to which the return relates (including every document required by law to be annexed to the balance sheet); and

b)       a copy, certified as aforesaid, of the report of the auditors on, and of the report of the directors accompanying, each such balance sheet;

c)       a certificate signed both by a director and by the secretary of the company that the company has not, since the date of the incorporation of the company, issued any invitation to the public to subscribe for any shares or debentures of the company.

It is important to note that requirements (a) and (b) above only apply to public companies. However, private companies would also be similarly bound if at least one shareholder is a public company.

13.     SERVICE OF DOCUMENTS ON THE COMPANY

Service in law refers to the delivery of a document to the person or entity entitled/required to accept receipt of the same. Documents can be, among others, legal notices or mere delivery of official letters. Under the Companies Act, a document may be served on the company by personally serving it on an officer of the company, by sending it by registered post to the registered postal address of the company in Kenya, or by leaving it at the registered office of the company. As such, when a company is served in any of the above mentioned methods, the directors/officers if the company should accept the same as proper service.

In summation, the company must only engage in such activities and undertake such businesses as are envisaged and permitted or incidental to its objectives as are contained in the Memorandum of Association. Anything not falling within the ambits of the stated objects may be declared null and void for all intents and purposes to the prejudice of the company and the shareholders.

We hope this advice suffices your post-incorporation of company concerns. However, should you need further clarification, please contact us at stralexgroup@gmail.com.

Tedslaw Consultants,
Member of the Strategic Legal Solutions Group

4 comments:

  1. Cool blog. I'd prefer a laid back theme though. Red is a bit loud.

    ReplyDelete
  2. So this is one way of simplifying this and putting it in a manner that is very easy to comprehend. Nice job here. limited liability company

    ReplyDelete
  3. Company formation process in Pakistan can be obtained by using incorp.pk's services

    ReplyDelete