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[ESTABLISHING A BUSINESS ENTITY IN KENYA]
of company U. Company X may also have a company (company Y) above it, which is its holding company. A parent undertaking, on the other hand, is an undertaking that: (a) holds a majority of the voting rights in the other undertaking; (b) is a member of the other undertaking and has the right to appoint or remove a majority of its board of directors; (c) has the right to exercise a dominant influence over the other undertaking— (I) because of provisions contained in the other undertakings articles; or (ii) because of a control contract; (d) has the power to exercise, or actually exercises, dominant influence or control over the other undertaking; or (e) is a member of the other undertaking and controls alone, under an agreement with other shareholders or members, a majority of the voting rights in it; These definitions are contained in Section 2 of the Companies Act, 2015. Notably, the Act fails to provide a definition of a Branch under its definitions section. The difference between a holding company and a parent company requires significant 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 suggests, it brings together businesses and controls 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, it 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 and, hence, is not considered a separate legal entity. Any liability arising from the conduct and the running of the affairs of a branch is taken to be that 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.
ILN Corporate Group – Establishing a Business Entity Series
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