FORMS OF BUSINESS STRUCTURES IN KENYA

When starting a business, owners must decide what form of business entity to establish.

What form your business adopts will affect a multitude of factors, many of which will decide your company’s future. Aligning your goals to your business organization type is an important step, so understanding the pros and cons of each type is crucial.

Below are some of the business forms discussed in detail.

Sole Proprietorships

​This is a business enterprise operated and owned by one person who is called a sole trader or a sole proprietor.

A sole proprietorship is the simplest and most common structure chosen to start a business, and there is no distinction between the business and owner.

The owner is the sole decision maker in the business and is liable for all the losses and returns of the business. In most cases it is usually a business structure for small and medium sized enterprises (SMEs)

Partnerships

A partnership is a single business where two or more people share ownership.

It is owned by a minimum of 2 and a maximum of 20 except for partnership who provide professional services e.g. medicine and law which have a maximum of 50 persons.

Each partner contributes their expertise or other skills, money or property to have a share in the business so that they can share in the profits and losses of the business.

Each partner includes his or her share of the partnership’s income or loss on his or her tax return.

Private Limited Company

It is a legal entity separate from the owners. I t has rights and obligations

Can be formed by a minimum of 1 and a maximum of 50 shareholders, excluding the employees.

A local company may be in the form of:

• A company limited by shares
• A company limited by guarantee
• Unlimited company

Does not advertise its shares to the public, but sells them privately to specific people

It can be managed by one or two directors. However, a big private company may require a board of directors to run its management.

Can own property, enter into contracts, sue or be sued.

LIMITED LIABILITY PARTNERSHIPS

An LLP combines the characteristics of both a company and partnership. Once it is registered, it gains a corporate legal entity different from its members and is able to own property in its own name. In addition, it is effective from a tax perspective as the partnership income is taxed in the hands of each partner.

Public Limited Company

It can be formed by a minimum of 7(seven) shareholders and no set maximum.

If advertises its shares to the public/ invites the public to subscribe for/buy its shares and debentures.

Must publish their end of year accounts and balance sheets.

Most of the other features are similar with those of a private limited company.

Co-Operatives

A co-operative society is a form of business organization that is owned by and run for the economic welfare of its members
It is a body of persons who have joined together to do collectively what they were previously doing individually for mutual benefit.

Membership is open to all persons so long as they have a common interest. Members are also free to discontinue their membership when they desire so.

Co-operative societies have a perpetual existence; death, bankruptcy or retirement of a member does not affect its operations

They are managed in a democratic manner. Every member has one vote when electing the managerial committee irrespective of the number of shares held.

Co-operative societies have limited liabilities

Co-operatives have a separate legal entity from the members who formed it i.e. they can own property sue and be sued.

Public Corporations

These are organizations formed by and/or controlled by the government (the government has a controlling interest)
They are formed to provide essential services that are generally in the public interest, and that may require heavy initial capital investment which few private investors can afford

They are formed by the act of parliament.

Examples of such corporations include:

• Kenya Railways corporation- provides railway transport
• Postal corporation of Kenya.
• Kenya air ways- provide air transport services. Etc.