A subsidiary is like a local incorporated company with the only difference being that it is wholly or largely owned by another incorporated entity. This can be incorporated either as a private limited liability company or a public limited liability company depending on the number of members.
The number of members for a private limited liability company can range from one (1) member up-to fifty (50) members excluding employees. This means that the subsidiary can be wholly owned by the parent company. On the other hand, there is a requirement that it must have at least one director who is a natural person.
The incorporation process of companies is currently undertaken on the e-citizen online platform that sought to eliminate the physical human interface though the process still relies on officials on the back end who review and approve applications. The process is currently a one-stop process where you apply for reservation of name as you make the full application for incorporation.
One is at liberty to adopt the model articles of association or customize the same to suit their requirements, particularly where one wishes to align the articles with those of a parent company.
Advantages of incorporating a subsidiary
(a). The subsidiary may or may not carry out the same business as its parent company;
(b). It has a separate legal personality from the parent company. This means that the liabilities of the subsidiary do not accrue to the parent company;
(c). Tax benefits. A subsidiary is taxed at the rate of 30% of the income generated in Kenya which is the same as a local company. This is cheaper compared to the corporate income tax rate of a branch which is at 37.5%. The tax is only chargeable on the income accrued and derived in Kenya.
(d). The subsidiary can choose to retain the name of the parent company or get another one altogether.
Disadvantages of incorporating a subsidiary
(a). Should you not have Kenyan shareholders and/or directors then you will be required to take out an investor permit to be able to get tax registration, open bank accounts and generally run your business in Kenya;
(b). The winding up process of a subsidiary is complex as it is treated as a company incorporated in Kenya and hence has to follow the procedure in accordance with the Insolvency Act 2015.
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