Distinguishing Private and Public Companies in Kenya
The Companies Act of 2015 distinguishes private and public companies in Kenya. Private companies, limited to 50 members, prioritize closely held businesses with no public capital raising. They have fewer compliance requirements and flexible share structures. Public companies, indicated by "Public Limited Company" or "PLC," aim to raise capital publicly, with unlimited members and strict compliance standards.
Introduction
The Companies Act of 2015, provides for various types of companies among them, private and public companies. Whereas public companies are suitable where their owners intend to raise capital from the general public, private companies are ideal where the owners prefer a closely held business and are not looking to raise capital from the public. This article seeks to shed light on the salient features of each as well as the resultant compliance requirements.
What are the key features of a private company?
a. Incorporation
Private companies are identified by their incorporation certificates stating their private status. The liability of their members may be limited by shares or guarantee. Where it is limited by shares, a shareholder’s liability is limited to the amount of unpaid shares they hold. Where it is limited by guarantee, the liability of members is limited to the amount they agree to contribute to the company’s assets in case of liquidation. These Companies are registered with a name that ends with the words “Limited”. A private unlimited company on the other hand implies that the liability of its members for its debts is unlimited. Private limited companies are the most preferred by promoters seeking to run business in Kenya.
Once a private company is issued with a certificate of incorporation, it can commence business immediately unlike public companies which are required to obtain a certificate of trading in order to commence business or exercise the power to borrow.
b. Shareholders
A private company has a limit as to the maximum number of members which is set at fifty excluding employees who are also shareholders.
c. Share transfers
A private company through its articles restricts the rights of its members to transfer shares. Private companies are prohibited from inviting the public to subscribe to its shares or debentures. Further, in order to add a new member to the company, the consent of all members has to be sought.
d. Directorship
Private companies are required to appoint at least one director who is a natural person. Unlike public companies, there are no onerous restrictions placed on private companies lending to the directors and related persons.
e. Share Capital
These companies are not subjected to minimum share capital requirements and can issue unpaid shares fully or partially where its articles of association so allow.
f. Company Secretary
Private Companies are required to either appoint a company secretary or a resident director or a contact person with a permanent residence in Kenya. However, where a private company has a paid-up capital of five million shillings or more, it is mandatory for it to appoint a company secretary.
g. Statutory Meetings
These companies are not required to hold statutory meetings neither are their directors required to retire by rotation.
What are the key features of a public company?
a. Incorporation
Public companies have their incorporation certificates indicating that they are public companies. The liability of members in a public company may be limited by shares or guarantee. Where this is the case, the company is registered with a name that ends with the words “Public Limited Company” or “PLC”.
Once issued with a certificate of incorporation, they are further required to obtain a certificate of trading in order to commence business or exercise the power to borrow. It is important to note that issuance of a certificate is subject to the company complying with the requirement to hold and maintain the authorized minimum capital which is set at six million seven hundred and fifty thousand Kenya shillings.
b. Shareholders
There is no set maximum number of members a public company may have.
c. Share Transfers
The rights of members to transfer their shares in the company is not restricted. This entity can invite members of the public to subscribe to its shares or debentures subject to compliance with the Capital Markets Act.
d. Directorship
A public company must appoint at least two directors, one of whom must be a natural person. The directors are subject to retirement by rotation. All directors at the first annual general meeting and one third of directors in the subsequent annual general meetings are required to retire.
e. Share capital
Unlike private companies, public companies are required to have at least one quarter of the nominal value of the issued shares fully paid up. Public companies are further required to maintain an authorized minimum capital of six million seven hundred and fifty thousand Kenya shillings.
f. Company Secretary
Public companies are required to appoint at least one company secretary.
g. Statutory meetings
These entities are required to hold statutory meetings. The reports arising from such meetings should be shared with the shareholders and filed with the Registrar of Companies.
Conclusion
When choosing the most suitable business vehicle for your business various factors such as the nature of business, size, liability, raising of capital and complexity come into play. Ultimately, the type of business vehicle settled on affects the running of the business as well as the resultant compliance requirements. It is thus imperative that applicants seeking to register an entity have a clear picture of the features, resultant obligations and benefits accruing from the business model they choose.
How we can help
At CM SME Club, we specialize in guiding businesses in selecting the most suitable business entity for their needs. We are here to assist you in the seamless incorporation of your business. Contact us https://cmsmeclub.com/ for support in your entrepreneurial journey and let us help you propel your venture to success.
Emily Gitau – Associate Advocate
Published on Aug. 22, 2024, 1:10 p.m.