A Company Limited by Guarantee

Company limited by guarantee

A company limited by guarantee under the Kenyan Companies Act [2015]

  • must be incorporated without share capital;
  • the liability of its members must be limited by the company’s articles to a specific amount (usually a nominal amount) that the members undertake to contribute to the assets of the company in the event of liquidation;
  • its certificate of incorporation must state that it is a company limited by guarantee. It is not clear under the new Companies Act [2015] whether a company limited by guarantee may be a private company or a public company.

There are various associations for charitable causes and not for profit (for example, clubs, and associations of traders for trade protection or information) and they may be incorporated in many forms including as a company limited by guarantee.

A company limited by guarantee (CLG) is a type of corporation used primarily for non-profit organizations that require legal personality. It requires all directors and members to undergo vetting before the company is Registered.

The parties involved do not remove the profit from the company as shareholders can in a company limited by shares. Any profit made by the company is re-used for the good of the business.

A Company Limited by Guarantee has members who act as guarantors. This means that it allows the entity to have multi-membership. A company limited by Guarantee has a very similar structure to a company limited by shares.

Indeed, they have directors appointed to manage the day-to-day running of the company.  Interestingly enough, according to the Registrar of Companies, the members and directors are required to undergo vetting by the National Intelligence Service (NIS). When the vetting is complete, then we can proceed with its registration.

There is no prescribed organizational structure for a company limited by guarantee. Nor are there any particular restrictions as to who may be appointed a director; there is no requirement that a director be a resident or citizen of Kenya, for example.

Companies may also act as directors; however, the company must have at least one director who is a natural person or a corporation sole. 

Under the Companies Act [2015], a group or association of persons can incorporate as a private or public company. The Act also requires that a company limited by guarantee must attach a statement of guarantee containing the prescribed information to enable the memorandum of association’s subscribers to be identified (Companies Act, Section 15).

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.
  3. It is desired to limit the liability of the members.
  4. 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.

Registration of a Company Limited by Guarantee

  1. Register and log onto the eCitizen platform and select Business Registration Service.
  2. Name search/Business Name Registration where you will need to choose the type of business you want to register plus your preferred business name. A name search is processed within a day and only one name can be submitted at a time. It is processed from Monday to Friday between 8am to 5pm excluding public holidays. If the persons registering a company limited by guarantee wish to dispense with the word ‘LIMITED’ in the name of the company they can do so by making an application for exemption to the Registrar General for which they will be required to pay an additional fee of Kshs. 3000.
  3. Business registration. Once the business name has been approved, you can then be allowed to register your business. Once your company name has been reserved, you will need to provide your information that will be used to prepare your company documents.

Required Documents for Registration

  1. Application and reservation of name. The name search and reservation process can be done on the E-Citizen platform.
  2. A duly filled Form CR 1 – which is an application form used for the registration of a company limited by guarantee…
  3. Model memorandum for a company limited by guarantee (Form CR3)
  4. Articles of Association are only attached if the company chooses to present its own articles instead of adopting those provided in the Regulations.
  5. A copy of the national I.D. card, KRA PIN certificate, and recent colored passport photograph of each director and the company secretary (if any).
  6. Notification of directors’ residential address (Form CR8)
  7. Copy of I.D card of person lodging documents.
  8. Registration fees as follows:
  9. The registration fee for all companies is Kshs.10,000/=.
  10. Kshs.650/= for the filing and postal fee for any company form
  11. Additionally, for companies without a share capital:
  12. Kshs.1,500/= with no share capital and 20 members or less
  13. Kshs.6,000/= with no share capital and 20-100 members
  14. Kshs.10,000/= with no share capital and 100+ members
  15. For companies with over 100 Members:
    Kshs.1,000/= for every 50 members or less
    Kshs.11,000/= for unlimited members.

Processing time: The time it takes for the registration process to obtain the Certificate of Incorporation varies. Usually it takes between 3 to 12 days

The Application for Registration Form CR1 has to include:

  1. The proposed name of the company;
  2. The proposed location of the registered office of the company;
  3. Whether the Liability of the Members of the Company is Limited by Shares or by Guarantee
  4. Whether the Company is to be a Private or Public company; If the company is to be Limited by Guarantee;
  5. The application must be accompanied by a Statement of Guarantee
  6. The application must be accompanied by a Statement of the Company‘s proposed Officers; and
  7. The Information identifying the Subscribers to the Memorandum of Association.

According to section 9 (1) (b) of the Companies Act 2015, a company limited by guarantee cannot be a private company.

Further, under section 7 (1) (a) of the Act, such a company cannot have a share capital. This contrasts with the position under the repealed Companies Act which allowed a private company to being limited by guarantee and further to have a share capital.

However, it is worth noting that, under the new Companies Act, a company registered before the commencement of the Act as a company limited by guarantee but having a share capital is not prohibited.

Dissolution

Under the Insolvency Act, companies limited by guarantee may be liquidated either voluntarily or by order of the High Court. At liquidation, according to the Act, the following debts must be paid out in priority to all unsecured debts (Insolvency Act, Second Schedule):

1. All the expenses of the liquidation including the remuneration of the liquidator and the reasonable costs incurred by the person who applied to the Court to place the company into liquidation.

In the case of a creditor who protects or preserves assets of the company for the benefit of the company’s creditors by payment of money or giving an indemnity, expenses are to include the amount received by the liquidator by the realization of those assets up to the value of that creditor’s unsecured debt and the amount of the costs incurred by that creditor in protecting, preserving the value of, or recovering those assets;

2. Any employees’ (excluding directors or their nominees, relatives, or trustees) wages or salary in respect of the four months prior to the commencement of the liquidation; any holiday pay; any compensation for redundancy that accrues before or because of the commencement of the liquidation; any amounts deducted from wages or salaries by the company to satisfy obligations to other persons (including tax); and any reimbursement or payment provided for or ordered by the Employment and Labour Relations Court, together not exceeding KES 200,000 per individual claimant or such other amount as may be prescribed from time to time; and all amounts that are by any law required to be paid in accordance with this priority by a buyer to a seller on account of the purchase price of goods;

3. Unpaid tax deductions under the pay-as-you-earn rules of the Income Tax Act; unpaid non-resident and resident withholding tax deducted under the Income Tax Act; and unpaid duty payable under the Customs and Excise Act;

In the following circumstances, the following debts must be paid out in priority to certain secured debts:

1. The expenses of liquidating a company (including the remuneration of the liquidator) have priority over any claim to assets comprised in or subject to any floating charge so far as the assets of the company available for payment of general creditors are insufficient (Insolvency Act, Section 473).

2. In the event of a company under liquidation or administration or if a provisional liquidator is appointed in respect of the company, the liquidator, administrator or provisional liquidator must set aside 20 percent of the assets of the company available to satisfy the claims of any floating charge holders (net assets) for the satisfaction of unsecured debts unless the net assets are less than KES 500,000 and the liquidator administrator or provisional liquidator (as applicable) believes that the cost of making a distribution to unsecured creditors would be disproportionate to the benefits (Insolvency Act Section 474).

Political Affiliation

According to Kenyan common law, companies are free to engage in political or legislative activities if their governing documents permit it.

Silvana
Silvana
Silvana & Associates Advocates is a premier medium-sized law firm established in 2014 and based in the Metropolitan City of Nairobi. We offer Corporate and Commercial Law services.