LEGAL OPINION ON THE APPROPRIATE FORM OF BUSINESS

1. BACKGROUND
Mark has been practicing as a sole practitioner advocate for the last two years. Mark is a single
father who supports a local charity organization by providing pro bono services. His chief
competitor is Alicia, who got admitted to the Bar at the same time as Mark but has been
practicing for only one year, also as a sole practitioner. Alicia is passionate about the use of ICT
in her practice. Both businesses had been set up in Kajiado town.
Mark and Alicia have decided that they want to work together, but are unsure as to which
business structure would be the most appropriate for their circumstances. They have
approached your firm seeking advice with regard to which entity would best suit their needs.
They have indicated that they want the entity to have the below characteristics:
• They wish to avoid significant levels of formality and regulation
• They want to have flexibility in establishing the procedures by which the
business is to be run
• They want to be able to run their affairs in private
• They want to avoid personal liability for the debts and liabilities of the business
• The process of creating the business should be relatively cheap and quick
• They do not want to invest significant amounts of their own capital in setting up
the business and will probably wish to raise capital from outside sources
• They wish to take on employees.

2. ISSUE
a) What is the most appropriate business structure and the process of registration?

3. APPLICABLE LAW
a) Company Act 2015
b) Partnership Act
c) Business Registration Act
d) Limited Partnership Act
 4. ANALYSIS
The main forms of business applicable in this case are:
1. Private limited company
2. Public limited company
3. Sole proprietorship
4. General partnership
5. Limited liability partnership

1. Private limited company

A limited company is a form of business organization whereby the company is regard as a
legally distinct entity. In that, the company and its members are separate legal entities.
Moreover, it can own its assets and incur liability and can be sued and sue in its own name.
Private limited company is established under the company Act of Kenya (2015) 1. As the
name suggest the company affairs are private and the liability of the company are limited to
the extent of the shares of the members. Moreover, the company cannot offer its shares to
the general public.
Other distinct features:
a) Requires a minimum of 1 director
b) Minimum of 2 members to form the company
c) Transfer of shares is limited to members
d) The company has perpetual succession and minimum paid up capital

2. Public limited company

Public limited company is established under the company Act of Kenya (2015) 2. As the name
suggest the company affairs are public and the liability of the company are limited to the
extent of the shares of the members. The main difference with private limited company is
that a public limited company can raise its capital by offering its shares to the general
public. Its Shares are traded on the stock exchange, and members of the general public buy
its stock. A PLC must have issued shares to a value of at least 20,000,000 before it can
trade3.
Its key characteristics are;
a) It has a minimum membership of seven members and unlimited maximum number.

1
Company Act 2015
2
Ibid
3
ibid
 b) The shares are freely transferable to the general public
c) its formation, working and it’s winding up and all its activities are strictly governed by
rules, laws, and regulations.

Incorporation of a limited company

To set up a limited company, one must register with the Registrar of companies. Through
government reforms the process is much easier, one can now register through the Office of the
Attorney General’s Office- Company section or simply through the Kenyan government e-citizen
portal.
When registering, you will need to provide:
i) The full proposed and approved name and address of your company;
ii) The name, Id and postal and physical addresses of directors
iii) Details of shareholders including the, Id and postal and physical addresses
iv) Capital and shareholding ownership
v) Phone numbers for the directors
vi) Kenya Revenue Authority pin numbers for the directors
vii) Identity card for the directors
viii) E-citizen account for the directors
Once your limited company is incorporated, you will need to register for income tax or
corporation tax.
Cost of Incorporation
The cost of incorporation as provided in the business registration service is Kenya shillings
10,650/=.4
3. Sole proprietorship
As the name suggests it is a business entity owned and operated by a single person. The owner
is liable for the business liabilities and returns of the business. It is established under the
Business Registration Act5. Its formation is the simplest as it involves only the registration of the
business name and the owner’s details. An example is small and medium sized enterprises
(SMEs).
Cost of Incorporation
The cost of registration as provided in the business registration service is Kenya Shillings 950 6

4
https://brs.go.ke/index.php
5
Business Registration Act
6
https://brs.go.ke/index.php
 4. Partnership
A partnership is a type of business arrangement between two or more persons who share a
common view of profit making. As the name suggests it’s a partnership in that the partners
make decisions jointly and bear the liabilities and the benefits of the business as per their
contribution the partnership. It is provided under the partnership Act 7 which among other
provisions provide the management and running of the partnership business. The liability of the
partnership is not limited to the partnership in that the partners bear liability of the
partnership.
Cost of Registration
The cost of registration as provided in the business registration service.8
5. limited liability partnership - LLP
A limited liability partnership (LLP) is a distinctive business organization established in the
Limited Liability Partnership Act9. It incorporates the features of both a limited company and
partnership. In that upon its registration it gains a corporate legal entity different from its
members and is able to own property in its own name. In addition, the decisions are made
jointly however the liability of the partnership is limited to the partnership.
Cost of Registration
The cost of registration as provided in the business registration service is the sum of Kenya
shillings 25,000/= 10
5.REASONING
From the above analysis,
i) They wish to avoid significant levels of formality and regulation. -All the forms of
business with the exception of public limited company and private limited company
are applicable.
ii) They want to have flexibility in establishing the procedures by which the business is
to be run. - All the forms of business with the exception of public limited company
and private limited company are applicable.
iii) They want to be able to run their affairs in private- All the forms of business with
the exception of public limited company are applicable.
iv) They want to avoid personal liability for the debts and liabilities of the business- All
the forms of business with the exception of general partnership and sole
proprietorship are applicable.
7
Partnership Act
8
https://brs.go.ke/index.php
9
Limited Liability Partnership Act
10
https://brs.go.ke/index.php
 v) The process of creating the business should be relatively cheap and quick - All the
forms of business with the exception of public limited company.
vi) They do not want to invest significant amounts of their own capital in setting up
vii) the business and will probably wish to raise capital from outside sources. - All the
forms of business with the exception of private limited company.
viii) They wish to take on employees. - All the forms of business are applicable.

6. CONCLUSION
The most appropriate form of business by deduction is setting up a limited liability partnership.