THE NUTS AND BOLTS OF ESTABLISHING A BUSINESS IN KENYA BY FOREIGNERS
Written by Pkania C. Kiplang'at from Oundo Muriuki & Company Advocates
Oundo Muriuki & Company Advocates is an associated office of United Advocates based in Kenya.
Kenya is not only the largest economy in terms of Gross Domestic Product (GDP) and per capita income in East and Central Africa, but is also a stable investment destination that attracts a lot of foreign investment. This write up provides legal insight to prospective investors in setting up a business, registration of a foreign company, protection of intellectual property, immigration and dispute resolution. A reader is cautioned that this write up is for information purposes only and does not constitute legal advice.
OVERVIEW ON FOREIGN INVESTMENT
Being a common law jurisdiction, legal personality is pre-requisite to undertake business in Kenya. The Constitution of Kenya defines “person” as a company, association or other body of persons whether incorporated or unincorporated.
This means that a prospective investor must first attain legal personality in Kenya. Recognized legal personalities in Kenya are business names (sole proprietorships), Partnerships, Limited Liability Partnerships and Companies.
The primary legislation with respect to regulation and protection of foreign investors in Kenya is the Foreign Investments Protection Act which allows a foreign national to apply to the Minister for a certificate to invest in Kenya. The Act sets out the procedure for application, the considerations and also provides for statutory protection from expropriation while also allowing for transfer of profit. A detailed analysis of the Act can be provided upon request.
This write up focuses on companies with the assumption that the entity seeking to set up business in Kenya is a company. Companies are recognized legal persons under the Constitution of Kenya and the Companies Act 2015. The latter stipulates that companies are legal persons with perpetual succession, limited liability with the ability to enter into contracts, own property, sue and be sued.
A foreign company is one that is registered outside Kenya under the laws of the country of incorporation. Foreign companies can operate in Kenya either as:-
- A branch which is simply registered without having to be incorporated in Kenya
- A subsidiary incorporated in Kenya
A subsidiary is considered a local company with compliance requirements similar to those of local companies while a branch is established to conduct business on behalf of a parent company in Kenya.
Registration of a branch
A branch is what is considered a foreign company under Part XXXVII of the Companies Act, 2015. Pursuant to Section 975 of the Companies Act 2015, a foreign company desirous of being registered as a foreign company is required to lodge an application with the Business Registration Service.
This is done electronically. This application is subject to a prescribed registration fee that caters for; the name search, the official search and the convenience fee. The documents required to accompany the application are;
- a duly completed FC 2 Form i.e. the application form;
- a certified/notarized copy of a current certificate of the foreign company's incorporation or registration in its place of origin, or a document of similar effect;
- a certified/notarized copy of its constitution.
- a list containing the names of its directors and shareholders and their personal details if that list includes directors who—
- reside in Kenya; and
- are members of a local board of directors
- a certified/notarized Memorandum that is duly executed by or on behalf of the foreign company and states the powers of the aforementioned directors; and
- If applicable, particulars of each existing charge on the property of the company [provided by completing Form CR 25] as well as a certified copy of the document creating or evidencing the charge (in circumstances where such charge would have been registrable had the company been formed and registered under the Companies Act, 2015);
- Notice of Address of the company’s registered office in its place of origin or, if it does not have such an office, its principal place of business in its place of origin; and
- Notice of the Address of its registered office established and maintained in Kenya.
Additionally, pursuant to Section 979 of the Act, a foreign company must appoint a local representative.
Once satisfied with the application, the Registrar of Companies will issue and sign a Certificate of Compliance stating:
- the name of the company and its identifying number;
- that the company is registered as a foreign company under the Companies Act, 2015 and the date of such registration; and
- the date of incorporation of the company in its place of origin.
The Certificate of Compliance is conclusive evidence of compliance with the requirements of registration as a foreign company under the Companies Act, 2015. Once the certificate is issued, the business can operate in Kenya.
Registration of a subsidiary
The first step is the reservation of a name and in this case, one may choose to reserve the name of the mother company or get a new name all together.
The foreign company must then produce a certified/notarized Certificate of Incorporation together with certified/notarized copies of the Memorandum and Articles of Association of the parent company.
- The requirements for Registering a Company in Kenya include the following:
- A Proposed Company name: The proposed business name search is conducted to ensure it is not similar to an existing registered business. If approved, it is reserved for 30 days. BRS requires a minimum of 3 names to be submitted.
- Objectives of the Business :This is essentially the business that the company is being set up to carry out. This business must be entirely legal and not against public policy.
- Names of the Directors, contact details and email : For transparency and accountability purposes, KRA requires that the director's information be indicated on the application for registration.
- Proof of Identification : a valid and unexpired proof of identification must be provided for each director during the registration process. For foreigners who are legally residing in Kenya, a foreign national registration certificate - Alien card and for non-resident aliens, an international passport is required.
- Passport Photo: a clear and recent passport photograph must be provided for each director and officer of the company.
- KRA PIN: all directors whether resident or non-resident are required to provide a Kenya Revenue Authority (KRA) Personal Identification Number (PIN) certificate copy to prove registration with the tax authority.
- In addition, the following forms must be signed by all directors and submitted during registration
- Form CR1 – This is the company registration form.
- Form CR2 – This is the Memorandum of company with share capital
- Form CR8 – This is the notice of registered address form and
- Statement of Nominal capital by all Directors.
- The Certificate of Incorporation is received from the Kenyan Registrar of Companies after submitting all required documents. If a branch was registered, a certificate of compliance will be issued.
PROTECTION OF INTELLECTUAL PROPERTY (IP) RIGHTS OF FOREIGN COMPANIES IN KENYA
Intellectual Property enjoys constitutional protection in Kenya under articles 11(2)(c) and 40(5) of the Constitution of Kenya and the state is obligated to promote IP rights.
The statutory regime on IP protection comprises of Industrial Property Act for protection of patents, the Trade Marks Act for protection of Trademarks and the Copyright Act.
Additionally, by dint of Article 2(6) of the Constitution, all treaties ratified by Kenya form part of the laws of Kenya thus, a number of regional and international treaties also form part of the laws of Kenya.
These statutes provide a framework on registration of IP rights in Kenya and the region and provide for protection and enforcement of IP rights.
These IP rights are patents, copy right, Trademarks (TM) and Trade Secrets, which play a significant role in the business operations of a corporate entity.
An inventor or an authorized person may apply for a patent in Kenya. The requirements of patentability in Kenya are that the invention must be new, it must constitute an inventive step and must have industrial applicability,
PROCESS OF PATENT REGISTRATION
An application for the grant and registration of a Kenyan patent may be filed by the inventor or any other person to whom she has transferred the right who has to make a statement justifying the applicants right to a patent (S34 (3); R12 (8)).
1. Request (IP Form 3) sec. 34
The request for grant is based on a provisional or a final specification denoted by marking the appropriate boxes on the form. The final specification is due within one year from the filing date and that the Institute will not process the application until the final specification is filed.
It states the name, address, nationality and country of residence of the applicant; It states the name and address of the inventor ; It states the name and address of the agent where necessary.
If there is more than one applicant, the request should set out, in addition to an address for each applicant, a single address at which all the applicants can be contacted. For each inventor, the request should be accompanied by an extra copy of the statement if there is more than one inventor
2. Title of the invention
- Title should be short and precise, as required under section 34(3) of the Act and must clearly and concisely state the technical designation of the invention and must exclude all fancy names.
3. Description of the invention
- It should state the title of the invention; specify the technical field to which the invention relates; indicates the background art which, as far as it is known to the applicant, can be regarded as useful for the understanding, searching and examination of the invention; and indicates how the invention is industrially applicable
4. Receipt of Application
- All documents relating to patents are received at the front office of the patent registry and the date of receipt is stamped upon receipt of the documents. The documents should be in English but do not have to meet any particular requirements as to form or presentation.
- The date of receipt should be applied, upon capturing the receipt of any application, the computer system generates the application number automatically. The application is then forwarded to the accounts section for reception of the applicable fees.
- From the accounts section the application is taken back to the front office for data capture. The application is then forwarded to the registry where a physical file is opened and the file is assigned to an examiner in the relevant field.
5. Requirements considered and examined
- The examiner is to determine whether the application meets the requirements for according the filing date. These requirements are prescribed under section 41 of the Act as the name of the applicant, description, claims and drawings where necessary.
6. Corrections or amendments
- If the application does not fulfil the requirements, the examiner is required to invite the applicant, within 14 days from the date of the examination, to submit the required correction.
- The invitation should indicate that the applicant has 60 days to comply. If applicant does not comply, the examiner treats the application as if it had not been filed, the examiner should, within fourteen days, inform the applicant in writing.
7. Filing date upon meeting requirements
- Where an application meets the requirements, the receiving date becomes the filing date and the same must be so communicated to the applicant in writing.
8. General requirements
- The application should meet the following general requirements;
- That the application is in triplicate.
- That each of the following is numbered as a separate series, using Arabic numerals with the numbers centred at the top of the sheets but not in the top margin — a) the request; b) the description, claims and abstract; and c) the drawings.
- That every fifth line of the description and the claims is numbered with the number appearing to the left of the line but not in the margin.
- That all parts of the application are prepared so that they are legible when they are photocopied or otherwise reproduced.
- That the form of appointment of agent is filed (form IP 39) and the fee is paid.
- That there is statement justifying applicant’s right to patent if the applicant is not the inventor (form IP 4).
9. Request for substantive examination
- After the application meets all formal requirements, the examiner should invite the applicant to request for substantive examination by filing form IP8 upon payment of the prescribed fee.
- A search is done to discover the prior art relevant for the purpose of determining whether and if so to what extent, the invention to which the application relates is new and involves an inventive step pursuant to sections 22, 23 and 24 of the Act.
10. Publication of the patent application (Sec. 42)
- The purpose of the publication is to inform the public of the pending patent application before the Institute. The patent application should be published after the expiration of 18 months from the filing date or, where priority is claimed, the date of priority.
- In case of patent applications claiming priority, the term of eighteen months is construed from the original filing date and in the case of patent applications with two or more priority claims, the period is construed from the earliest priority dates.
- Before the application is published the applicant should be invited to pay the publication fee. The Industrial Property Journal should be published monthly at the end of each calendar month.
- The technical preparation for the publication of the IP Journal is considered terminated on or before the 20th day of every month. Therefore, for any matter that has to appear in the Journal in a particular month, the payment should be received by the Institute before the termination of the technical preparation
The fees chargeable are as follows:-
- Fee for a request for written authority under s. 28(1) of the Act 1,000
- Fee for a request for certificate that person has right to inspect files 1,000
- Fee for application for a patent, with a provisional specification 1,000 or with a final specification 3,000
- Fee for filing a final specification 3,000
- Fee for a request for amendment or division of an application 2,000
- Fee for request for amendment of application to change name, address or other contact information 1,000
- Fee for a request for extension of time 1,000
- Fee for publication of patent application (see Regulation 25) 3,000
- Fee for a request for a substantive examination 5,000
- Fee for grant of a patent (see Regulation 29) 3,000
- Fee for a request for a certified copy 2,000
- Fee for a request for an uncertified copy 500
- Transmittal fee (see Regulation 31) 5,000 250
- Fee for request to have an international application treated as an application under the Act (refused application) 3,000
- Fee for request to have an international application treated as an application under the Act (entry into national phase) 3,000
- Fee for request to have a regional application treated as an application under the Act (refused application) 3,000
An International Patent registered under the auspices of the Patent Co-operation Treaty enjoys protection in Kenya as a Kenya is party to the convention.
- A trade mark is defined as ‘a bundle of intellectual property rights granted to distinguish goods and services of one trade mark owner from those of the competitors.’ It is the distinct silk cloth that covers a corporate entity and gives it a unique appeal separate from its competitors.
Registration of Trademarks in Kenya
- For a corporate entity’s trade mark rights to be secured, they must be registered. Registration of trademarks is crucial since it guarantees the owner of a registered trademark, exclusive rights to prevent its use by third parties.
- Registration of a trademark is hinged upon whether the trademark is registrable in the first place. A trade mark is registered under section 4 of the Trade Marks Act Cap 506 by the Registrar of Trade Marks who enters the Trade Mark in the register of trademarks records. Section 5 of the Act clearly posits that a person whose an unregistered trade mark has been infringed upon shall not institute any legal action with regards to the same.
- A trade mark must meet the following criteria to be considered registrable;
- it should not be prohibited, e.g. a trade mark whose mark is identical to the political Nazi swastika is not registrable since the Nazi symbol’s use is prohibited.
- The trade mark must not be contrary to public order and the trade mark must relate to the use of a trade mark in the trade mark sense.
- Collective marks are marks fixed to products of certain groups or associations to identify products of that group from other groups. A foreign company registered in Kenya can use a collective mark for purposes of marketing products of a group of companies which separately would have difficulties in terms of consumers recognizing their trademarks and for the main retailers to distribute them. For instance, in the hospitality industry, Bulgari, Four Points and Residence Inn hotels use the mark belonging to Marriot Group of hotels in addition to their own trademark for ease of marketing.
- Collective marks are provided for under Section 40A of the Trademarks Act Cap 506 which prescribes for registration of collective marks. Application for registration of a collective mark must be done in the relevant prescribed form and shall be accompanied by a copy of the rules governing the use of the mark.
- A company may contain confidential information which is of significant commercial value. These companies are regarded as containing trade secrets e.g. the secret formula behind beverage companies such as Jack Daniels and Coca Cola or the trade secrets protected by I.T companies such as Google’s Search Algorithm.
- In Kenya there is no legal framework governing trade secrets. Similarly, there are no international/African conventions governing the same. Trade secrets are a byproduct of laws governing unfair competition, Contract and Tort Law. Trade secrets of a company can be protected by Non-disclosure Agreements which aim to protect confidential information that has commercial value.
- In conclusion, trademarks and Trade secrets are the most common aspects of I.P rights protected by corporate entities in Kenya. This flows from the fact that they play a critical role in marketing and identifying the company’s products vis a vis the company’s brand.
- Further advise on IP rights can be provided upon request.
IMMIGRATION REQUIREMENTS AND SETTING UP SHOP IN KENYA
- Foreigners can take advantage of business opportunities in Kenya and set up or buy businesses while living in Kenya. However, they should take note of and adhere to the following legal considerations:
- A foreigner in Kenya requires a work permit to live in Kenya and run a business. There are various classes of work and residence permits depending on the type of investment one intends to run in Kenya. Further, a foreign investor coming to Kenya with their family will need to obtain the requisite resident permits (dependents’ passes) to facilitate lawful immigration status in Kenya.
- Depending on the sector one intends to invest in, below are some of the permits a foreigner investor will be required to obtain before they can initiate their business while living in Kenya:
- Class A: (for prospecting and mining)
- Class B: (Agriculture and Animal husbandry)
- Class C: (Prescribed profession)
- Class F:(Specific manufacturing)
- Class G:(Specific trade, business or consultancy)
Minimum Investment Amount
- Any foreigner intending to set up a business and obtain a permit to live and work in Kenya must show that they can provide minimum capital of at least USD 100,000. This is proved by audited accounts provided by the foreign investor in their application to obtain a Permit. Further, they are also required to pay a standard processing fee of Kshs. 10,000.
- It is important to note that certain sectors are regulated industries and one may need to apply for the requisite licence from the regulating authority i.e. a statutory body under Kenyan Law before legally operating certain businesses. Examples include the oil, energy, mining, pharmaceutical, liquor industries etc.
COMMERCIAL DISPUTE RESOLUTION IN KENYA
- Kenya is a constitutional democracy with an independent, functional, predictable and relatively efficient Judiciary.
- In commercial dispute resolution, the Constitution of Kenya embraces Alternative Dispute Resolution Mechanisms such as conciliation, mediation and arbitration. The enabling statutes allow for settlements reached out of court to be enforced as court judgments.
- Particularly, the Arbitration Act embodies settled and predictable practice of arbitration and allows for recognition and enforcement of international arbitral awards as Kenya is a member stated to the New York Convention on Recognition and Enforcement of Foreign Arbitral Awards.
- Commercial Litigation in Kenya is also commendable from the Small Claims Court which presides over disputes worth less than 10, 000 USD within 60 days, The Magistrate’s Court which determines disputes worth between 10, 000 -200, 000 USD between 4- 8 months and the High Court of Kenya’s Commercial and Tax Division which has specialized jurisdiction over commercial matters worth over Kes. 200, 000 USD and whose turnaround time is 1 year. The practice of these courts is entirely electronic from filing of cases, Case Management, hearings, judgments and execution proceedings.
- This write up is by no means exhaustive treatise on the legal and practical aspects of running of businesses by foreigners in Kenya. It is a guide and we are available to hold your hand on any challenge you may encounter as you seek to set up shop in Kenya
 Ben Sianya (2016), Intellectual Property and Innovation Law in Kenya and Africa.
If you require future assistance on the matter, please do not hesitate to contact us at United Advocates.