Choosing the Wrong Business Structure
Selecting an unsuitable business entity is a critical error. For instance, sole proprietorships or general partnerships expose owners to unlimited liability, whereas limited companies (LLCs/PLCs) cap personal risk. The structure also affects taxation and compliance (e.g. corporations face stricter reporting). Misalignment – such as using a sole proprietorship when you need outside investors or failing to form an LLC for a high-risk business – can leave owners overexposed or overly burdened. Always evaluate liability, capital needs and growth plans before picking a structure.
Name Reservation and Search Errors
Registering a business name correctly is essential. Common mistakes include:
- Submitting only one name option: Always reserve multiple preferred names. Registering only one candidate often leads to rejection if it’s already taken.
- Using banned or sensitive words: Kenyan law forbids certain terms. Names starting with “Kenya” or implying government/state connection require approval, and offensive or obscene words (in any language) are prohibited.
- Neglecting required suffix or uniqueness: A private company’s name must end with “Limited” (Ltd). The proposed name cannot duplicate or be confusingly similar to an existing company or trademark.
- Inadequate search: Relying only on a Google search or one name check is risky. Use the Business Registration Service (BRS) eCitizen portal to do a comprehensive name search and reservation. This ensures your name complies with the Companies Act regulations and is truly available.
Incomplete or Inaccurate Documentation
Filing incorrect or incomplete forms is a frequent cause of delays. Common documentation errors include:
- Missing or unsigned forms. All statutory forms (e.g. CR1, CR2, CR8 for share allocation) must be fully completed and signed. Leaving any required field blank or forgetting signatures will cause rejection.
- Omitting required attachments. You must attach all supporting documents: photocopies of ID/passport for directors and shareholders, recent passport photos, proof of residence, the Memorandum & Articles of Association, and a statement of nominal capital. Missing any of these (for example, no passport photo or no proof of address) will hold up the process.
- Neglecting KRA requirements. Every director/shareholder needs a valid KRA PIN at registration. The BRS eCitizen system requires that each director be registered on iTax before submission. Failing to provide PINs or using placeholders will force re-submission.
- Incorrect eCitizen uploads. The portal auto-generates forms that must be printed, signed, scanned and re-uploaded. Entrepreneurs often skip the download-sign-scan step or upload unreadable scans. Strictly follow the eCitizen instructions (download the CR forms, sign them, then upload) to avoid errors.
Non-Compliance with Legal and Regulatory Requirements
Even at registration, you must comply with various laws beyond form-filling. For example:
- Licenses and permits: Registering your company is only one step. Failing to obtain mandatory licenses (such as a county trade license or sectoral permits – health, environmental, etc.) is a common oversight. Operating without these approvals can incur hefty fines or even force closure.
- Procedural rules: Under the Companies Act, certain actions trigger extra steps. For instance, using words like “Bank” or “Cooperative” in your name typically requires additional approvals. Ignoring such requirements (or reserving a non-compliant name) will block your application.
- Post-registration compliance: Although after registration, be prepared to maintain compliance. Common mistakes include neglecting to file annual returns, not keeping statutory registers (shareholders, directors, etc.), or failing to update the Beneficial Ownership information as required by law. These can attract penalties by KRA or the Registrar.
Misunderstanding Tax Obligations
Tax non-compliance starts at registration. Key mistakes include:
- Skipping KRA registration: By law, any entity expecting a tax liability must register for a KRA PIN within 30 days. Some new entrepreneurs delay or forget this step, which is illegal and prevents lawful business transactions. You must immediately apply for a company PIN (as well as individual PINs for directors) via the iTax portal.
- Neglecting VAT or Turnover Tax: Kenya’s VAT threshold is KSh 5 million annual turnover. If you supply goods/services exceeding this, registration for VAT is mandatory. Even businesses below the threshold must pay a 3% turnover tax instead of VAT. Overlooking these obligations can lead to fines. Always check current KRA guidelines and register timely.
- Poor record-keeping and finance practices: Mixing personal and business funds, or failing to maintain clear accounting records, creates headaches at tax time. It also undermines proper filing of PAYE, VAT, corporation tax, etc. Keeping accurate books and separating accounts for the new company is essential to stay compliant (and to fulfill bank or KRA requirements).
Not Engaging Qualified Professionals
Trying to navigate company law alone often backfires. Many entrepreneurs underestimate the complexity of Kenyan corporate regulations. Pitfalls include:
- DIY constitutions and forms: Copy-pasting templates or poorly drafted Memoranda/Articles can omit critical provisions. A corporate lawyer or company secretary can ensure your documents meet all legal standards and are tailored to your needs.
- Missing procedural nuances: Professionals are familiar with the BRS/eCitizen system and KRA requirements. For example, a lawyer knows that form CR2 must match the share capital stated and that directors’ details must align with KRA records. Engaging experts helps catch these details.
- Accounting and tax advice: An accountant or tax consultant will help set up proper financial systems and ensure you meet registration and ongoing tax obligations from day one. This avoids costly mistakes like incorrect tax classification or missing essential filings.
