Converting A Business Name Into A Private Limited Company: Key Considerations And Benefits

Introduction 

Whereas most businesses often start out as sole proprietorships under the business name regime, growth among other circumstances often necessitates their conversion to the limited company regime. This transition is enabled by the provisions of section 15 of Registration of Business Names Cap 499.  

This article seeks to shed light on the key considerations, step by step process while also highlighting the benefits of converting your business name to a private limited company. 

 Key considerations when converting a business name to a private limited company 

1. Linking status of the business-The first step is to ensure that your business has already been linked to your eCitizen account especially if the business had been registered manually or it hasn’t been published onto the eCitizen account. 
2. Name change- If you would prefer to change the business name, you may initiate a change of name application prior to the conversion.  
3. Appointment of directors and shareholders- Unlike a business name which involves proprietors, the company involves shareholders and directors.  A private limited company, should at least have one natural person director and the rest can either be a natural or artificial person. 

A company should at least have one shareholder who can either be a natural or artificial person.  

1. Shares and shareholding-While converting a business name into a private limited company it is important to consider the number of shares that the company will hold as well as the number of shares that each shareholder shall hold.  
2. Articles of Association/Constitution of a company- A company may opt to adopt the model articles for companies prescribed by the Companies Act regulations or prepare its own articles. 
3. Ownership and management of the company – To govern the relationship between the shareholders and the company, it is crucial to enter into a shareholder’s agreement. A shareholders’ agreement is a binding contract between the shareholders of a company and the company, which governs their relationship and regulates control, ownership and management of the company. In essence, it acts as an additional document to the articles of association. It is a crucial document as it acts as a record of the parties’ agreement regarding the governance and running of their company. It also regulates the conduct of shareholders in terms of what can and cannot be done as well as their rights and responsibilities. 

Step-by-step process of converting a business name to a private limited company 

1. Make an application for cessation to convert  
2. Upload the business name certificate and fill out the notice of cessation of the business name to convert 
3. Upon receipt of the Certificate of Cessation, proceed to register the business as a private limited company by providing the incorporation details such as the details as to the shareholding, shareholders and directors etc forms 
4. Submit the application for review and approval 
5. Once the process is complete, a certificate of incorporation will be issued. 

Benefits of converting your business name to a private limited company 

1. A company is deemed as a separate legal personality from its owners, thus they cannot be personally liable for the liabilities of the company. Business names on the other hand are deemed as being one and the same with their proprietors, thus they are personally liable for the liabilities attached to the business. 
2. Seeing, that a business name embodies the same personality as that of its’ proprietor, the death or bankruptcy of the proprietor affects the continuity of the business. A private company on the other hand has perpetual succession allowing it to exist despite the changes in leadership or ownership. 
3. Private limited companies have limited liability which means that individuals in the company are protected against being liable for the debts of the company beyond their share in it. A business owner under the business name regime is on the other hand responsible for all the debts of the business at a personal level. 

How we can help 

The Corporate Commercial team at CM Advocates LLP is well-versed in matters relating to business set-up advisory and registration,conversion, post-incorporation registration, regulatory compliance, corporate restructuring, corporate governance, contract drafting and review. 

We advise various stakeholders on setting up business vehicles that are most suitable for the achievement of their objectives. 

We assist you procure a registered office for your business and avail the services of a company secretary, contact person and a local representative where applicable. We also offer tax advisory services and procure the relevant work permits for non-Kenyans and expatriate employees as well as their dependents. We draft and review the requisite contracts, deeds and agreements to be entered into between parties. We take care of your regulatory and compliance issues in a constantly changing regulatory environment so that your business can focus on its substantive activities. 

Should you have any questions on this or any other matter, please do not hesitate to contact us . 

Contact Persons & Contributors 

Emily GITAU (Associate Advocate) Corporate Commercial Law Unit -Email: egitau@cmadvocates.com  

Wahu WAMBUGU (Lawyer)- Corporate Commercial Law Unit Email: mwambugu@cmadvocates.com 

Disclaimer 

This article is for informational purposes only and should not be construed as legal advice.