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[ESTABLISHING A BUSINESS ENTITY IN KENYA]
The difference between a holding company and a parent company is one that requires great consideration. Both a parent and a holding company exercise a great deal of influence on their subsidiaries owing to their ownership of a majority of shares hence a majority of voting rights. However, their modus operandi is distinct, and this is what differentiates them. A parent company is one that actively involves itself in trade i.e. The provision of goods and services and controls the operations of its subsidiaries. By control, it means that a parent company acquires a form of controlling interest in the subsidiary. A holding company on the other hand does not engage in business operations on its own. As its name suggest it brings together businesses and control their business and investment interests. As such it does not engage in the provision of goods and services. In both cases, however, the subsidiary maintains its legal identity. Many foreign companies are faced with the challenge of choosing whether to open up a branch or a subsidiary in other countries as they seek to expand their business interactions and relations. A Branch though not defined in the Kenyan Company Act is considered to be an extension of the parent company hence entirely depends on the parent company. The Parent company is equally faced with the risk of bearing the liabilities of its branch as the branch does not constitute a separate legal entity. The legal status of a branch therefore is that it maintains the structure of the parent company hence is not considered as a separate legal entity. Any liability arising from the conduct and the running of the affairs of a branch is taken to be those of the parent company. In essence a branch in Kenya, is considered under the Companies Act, 2015 to be a foreign company and is required to comply with the provisions of the Act under Part XXXVII of the same. This is because such a company is
deemed/said to be incorporated in another country such as in this case Rwanda. A subsidiary on the other hand is considered to be a Kenyan company bound by the laws of the country. The registration of the company must equally be in line with the provisions of the Companies Act, 2015 under Part II on the registration of companies. Registering and operating a branch in Kenya There are a number of laws that regulate the registration and operations of a foreign company (branch) in Kenya. A foreign company must first be registered in Kenya in order to legally carry out its operations. Failure to register with a foreign company attracts a fine not exceeding KSH 5,000,000 . This fine applies to both the company and its officer in this case being the local representative of the company. These conditions for operation are outlined under section 974 of the Companies Act, 2015. The registration procedure for a branch of a foreign company in Kenya is provided for under Section 975. The foreign Company is required to make an application to the Registrar of companies who shall then proceed to register the company by entering its name in the Foreign Companies Register upon the fulfilment of certain conditions i.e. a. The supply of all information required by Section 975 b. Payment of all required fees and supply of required documents c. Compliance with the requirements as to the name and appointment of a local representatives. The documents required for the registration of a foreign company are these: (Section 975 (3)) (a) Current certificate of incorporation of the foreign company in its place of origin/ a document of similar effect
ILN Corporate Group – Establishing a Business Entity Series
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