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Kenya is a Commonwealth country with a common law system. The two main ways in which to register a not-for-profit organization (“NPOs”) in Kenya are as below:

1. Non-Governmental Organizations (NGOs); and
2. Companies Limited by Guarantee; 

The major difference between an NGO and a Company limited by guarantee is that the latter is allowed to engage in trading activities not for profit but rather for the sustenance of the business objectives whereas the former is not. 

Before delving into the two options, lets briefly discuss the PBO’s – the Public Benefit Organizations Act 2013 (“PBO Act”) seeks to regulate NPOs, including NGOs registered under the Non-Governmental Organizations Coordination Act (“NGO Act”). The PBO Act will repeal the NGO Act once a commencement date for the PBO Act is introduced (PBO Act Section 61).

Under Section 5(1) and 5(2) of the PBO Act, a “PBO” is defined as a voluntary membership or non-membership grouping of individuals or organizations, which is autonomous, non-partisan, non-profit, and which is locally, nationally or internationally organized and operated to engage in public benefit activities.  The PBO must also be registered with the Public Benefit Organizations Regulatory Authority, once the relevant authority is established.

At the same time, the PBO category does not include several types of organizational forms, such as:

• a trade union within the meaning of the Labour Relations Act 2007;
• a public body established by or under any written law;
• a political party within the meaning of the Political Parties Act, 2007;
• a religious organization which is primarily devoted to religious teaching or worship.
• a society within the meaning of the Societies Act;
• a co-operative society within the meaning of the Co-operative Societies Act;
• a Sacco society within the meaning of the Sacco Societies Act;
• a micro-finance institution within the meaning of the Micro-Finance Institutions Act, 2006;
• a community based organization whose objectives include the direct benefit of its members. 

 

Public Benefit Status

“Public Benefit Activity” is defined in Section 2 of the PBO Act as “an activity that supports or promotes public benefit by enhancing or promoting economic, environmental, social or cultural development or protecting the environment, or lobbying or advocating on issues of general public interest or the interest or well-being of the general public or a category of individual or organizations.”

An organization that has as its objective the promotion of public benefit in any of the following areas may be registered as a PBO by the Public Benefit Organizations Regulatory Authority: (a) legal aid; (b) agriculture; (c) children; (d) culture; (e) disability; (f) energy; (g) education; (h) environment and conservation generally; (i) gender; (j) governance; (k) poverty eradication; (l) health; (m) housing and settlement; (n) human rights; (o) HIV/AIDS; (p) information; (q) informal sector; (r) old age; (s) peace building; (t) population and reproductive health; (u) refugees; (v) disaster prevention, preparedness and mitigation; (w) relief; (x) pastoralism and the marginalized communities; (y) sports; (z) water and sanitation; (aa) animal welfare; and (bb) youth (PBO Act Sixth Schedule).

The PBO Act permits an organization to register under any of a variety of legal forms, but if an organization registers as a “Public Benefit Organization” in order to receive tax exemptions and other benefits derived from this status, it will cease to be registered under any other law (PBO Act Section 6; See also PBO Act Second Schedule, setting forth in detail some of the “Benefits of Registration” as a PBO).

However, the PBO’s are not operational as at today. 

Now lets delve into the two viable options as below: 

 

1. NGO’s

The NGO Act defines an “NGO” as “a private voluntary grouping of individuals or associations, not operated for profit or for commercial purposes but which have organized themselves nationally and internationally for the benefit of the public at large or for the promotion of social welfare, development, charity or research in areas inclusive of, but not limited to, health, relief, agriculture, education, industry and the supply of amenities and services”. This definition implies that an NGO should be formed for benefit of public at large and not for trading purposes.

Once an NGO is registered, by virtue of such registration it will be a body corporate with perpetual succession capable in its own name of: suing and being sued; taking, purchasing or otherwise acquiring, holding, charging or disposing of moveable and immovable property; entering into contracts; and doing or performing all such other things or acts necessary for the proper performance of its functions under the NGO Act, which may lawfully be done or performed by a body corporate.

Designation as an NGO confers certain tax benefits and imposes a series of regulations that are relevant to an equivalency determination.

Advantages

Exemptions from duty on imported equipment and goods required for the NGO’s activities in Kenya under certain circumstances

1. Exemption from Value Added Tax on the NGO’s income generating activities
2. Exemption from Income tax on the NGO’s expatriate employee’s
3. Limited liability on members if so provided under the NGO’s constitution. 

Disadvantages

1. Lengthy delays in the registration process arising from a lengthy vetting process by NGO Board and recommendations from various government ministries.
2. Annual report must be made in the prescribed form and submitted to the NGO Board on or before 31^st may in every year (the reports become part of public records and can be inspected by any person).
3. Various restrictions. Once registered an NGO must not amend its name or constitution or become a branch of or affiliated to or connected with any organization of a political nature established outside Kenya without the prior written consent of the NGO’s Board.

 

1. Companies Limited By Guarantee:

A number of NPOs are registered as companies whose liability is limited by the guarantee of the members.

A company limited by guarantee does not usually have a share capital or shareholders, but instead has members who act as guarantors. The company limited by guarantee is regarded as a separate legal entity from its members. The guarantors give an undertaking to contribute a nominal amount (typically very small) in the event of the winding up of the company.

Although this type of Company may engage in trading activities, any profit derived from such business must be ploughed back to the activities of the company. Distribution of profits made by the company to its members is prohibited by law.

Such companies are usually granted income tax and other tax exemptions on application.

Advantages:

1. Limitation of personal liability by guarantee;
2. It has members and not shareholders;
3. Lack of share-capital allows it to fundraise to further its objectives and the proceeds realized to be ploughed back into the company. Distribution of profits not allowed;
4. The Non for Profit Organization’s name may exclude the word “limited”.
5. Exemption from Income tax on application and other rebates; 

Disadvantages:

1. Lengthy delays in the registration process arising from a lengthy vetting process by the NSIS;
2. Annual returns must be filed with the companies registry

Timeline:

Approximately 6-12 months. 

Costs and requirements:

Should you be interested to work with us, please contact us on enquiries@jradvocates.com for any further information.