Kenya is considered the most developed economy in Eastern Africa and is considered the economic, commercial, and logistical hub of the entire region. Kenya’s population is estimated at 41 million with a large number of well-educated English-speaking—and multi-lingual—professionals, and a strong entrepreneurial tradition. It is also a very ‘young’ country with almost 70% of the population under the age of 35.

With its geographic location along the coasts, it also has the most developed infrastructure and is increasingly becoming a point of entry for many multi-national businesses while enjoying notable growth in recent cross-border activity.

Kenya held elections earlier this year, resulting in a win for Uhura Kenyatta over Prime Minister Raila Odinga. After some challenges to the vote, the election result was confirmed by the Supreme Court and even though some protest was seen during the campaign, it was generally more peaceful than the previous elections in 2007.

The country adopted a new constitution in 2010 and it is anticipated that a number of legislative reforms which are business friendly will be introduced in the short to medium term.  The judicial system follows English law and a number of reforms are being made to the judicial system, improving it constantly. The Courts, which operate on two levels, Superior and Subordinate Courts, have a suitable legal framework to enforce contracts and uphold them in principle. 

With all it has to offer, it is obvious that foreign companies would consider setting up business in this developing economy and it is therefore important to know what the basic rules and requirements are.  To begin with, every person conducting a business or trade within the area of a county is required to obtain a business permit in respect of each of the premises from which the person conducts the business or trade.

Registering a company takes approximately three weeks. A private company in Kenya must have at least 1 director and there are no residency requirements for directors of companies.  It is also possible to open a bank account in various currencies.

Once a company is registered, it becomes a body corporate with perpetual succession with legal powers and capacity to do all it requires to achieve its objectives. The objectives and constitution of the company are set out in its Memorandum and Articles of Association.

There are no minimum capital requirements on incorporation in Kenya and a share under Kenyan law is a moveable property and transferable in accordance with Kenyan law.  Companies having a share capital must assign a nominal or par value to each share.

Kenyan private companies require a minimum of 2 shareholders.  It is not always mandatory to have a local shareholder; however, in certain sectors such as telecoms and insurance, a local shareholder is mandatory. It may, however, be prudent to consider a local shareholder if this would strategically benefit the company.

Where there is a change of control pursuant to an acquisition, competition approval will be required.  Currently there are no minimum thresholds triggering notification – although, this is imminent - meaning that a change of control irrespective of the size of the parties or the size of the transaction will trigger competition approval and this approval process takes approximately two to three months.  In respect of due diligence exercises, particular attention must be given to property ownership rights as well as conducting a thorough tax review.

It is not uncommon for multi-nationals to use an offshore holding company to hold its in-country assets/investments in Kenya. A variety of offshore jurisdictions may be considered and these include Mauritius, BVI, Jersey, Dubai, and so on.  Expatriates working in Kenya require a work permit and must be approved by the Security Services. The application process could take anywhere from between three and six months.

In Kenya, there are no exchange control regulations and therefore a local entity would be free to remit profits to its parent company subject to normal company taxes making Kenyan law, in this particular sense, favourable to foreign investment.

On the down side, Kenya does not have a very good treaty network.  While it has a tax treaty with certain countries, the tax treaty has not yet come into force. 

In the event of conflict, it is possible for parties to contractually agree to refer any disputes to private arbitration with the rules of arbitration potentially being based on the United Nations model codes, local arbitration rules, international arbitration rules, etcetera.

Kenya is without doubt the place to consider for companies looking at penetrating East Africa and it is no wonder considering the legal principles in place, why it is such an attractive destination for multi-nationals and South African companies wishing to do business in East Africa.

Priyesh Modi, Director, Bowman Gilfillan

Bowman Gilfillan has offices in South Africa, Kenya, Tanzania and Uganda