Legal issues to consider when starting a business

Few things compare to the thrill of starting your own business.

However, your excitement can be quickly dampened by the legal process of setting up a new business.

Unfortunately, there’s no way around it. But if you know what is required, you can navigate the legal requirements efficiently.

Equipped with the right knowledge, you’ll also be less likely to make costly and time-consuming mistakes that could delay or thwart your plans.

Let’s explore the top legal considerations before starting a business in Kenya.

Figure out the legal structure of your business

Is your business going to be a sole proprietorship, partnership, or limited liability company? The legal structure you choose will affect how you run your business.

It has major implications on how you pay taxes, keep accounts, fundraising abilities and your liability.

The most common business structures are sole proprietorships, partnerships, limited liability companies, corporations and cooperatives.

Sole proprietorships are easy to set up. They give you control and can afford you some tax exemptions. However, you will be liable to pay business debts from personal assets. Partnerships may provide more funding options and tax benefits than sole proprietorships. Limited liability companies, on the other hand, provide business owners with liability protection, lower tax rates and more funding options.

If you are unsure about which structure will work best for your business, talk to a lawyer. While you can change your business legal structure in future, your initial choice of structure is crucial.

Changing a business structure can lead to tax consequences and even the dissolution of your business.

Business name and company registration

Do you have a business name in mind? That’s great! However, you have to search if the name is available.

In the past, a business name search and registration took weeks to finalise. Currently, the whole process can be completed on the e-Citizen platform in a shorter time. All you have to do is log into the e-Citizen portal, submit three preferred business names, and pay for the search. After completing this process, you’ll be able to download your Certificate for Business Registration within one to two days.

You will be required to describe the nature and activities of the proposed entity, provide the full identities of all the proprietors, postal and physical addresses for the proposed entity, including the plot number, the town and the county, attach copies of the national IDs or passports of all partners or proprietors as well as copies of their PIN certificates and then pay Sh850 for company registration.

Get business permits

Armed with a business name and registration, it’s now time to apply for a city or municipal council business permit.

This is a mandatory legal requirement for starting a business in Kenya.

The cost is determined by the size of your firm and the industry you want to operate in. Consult your local city or municipal council personnel about the fee.

As a business owner, you will be responsible for health and safety issues.

You have to ensure that your staff work in a safe environment.

You also have a responsibility to ensure the safety of anyone who enters, exits or passes through your business premises, including clients and guests.

This calls for health certification if you’re selling food.

For this, a health inspector will visit your place of business. You might also require a fire safety certificate, which requires you to have a fire extinguisher and to meet other fire safety regulations.

Insure your business

Taking out some kind of business insurance might be required by law.

Having a comprehensive insurance cover for the business will protect you from loss in cases of compensation claims from employees or customers and damages from natural disasters, and theft.

Depending on the nature of your business, it may also be advisable to insure your business from political violence – it will compensate you when your business is vandalised during political protests.