Sometimes, you can tell your business cannot survive or needs reset. Knowing how to dissolve a business legally can help you avoid stress and missing something that will lawfully affect you in the future.
In Kenya, the process follows clear rules under the Companies Act of 2015, ensuring you close a company properly.
This guide will take you step by step as you consider legal dissolving your business. It’s for anyone, an entrepreneur in a sole proprietorship, a company, or a partnership.
We will simplify everything as much as possible to help you easily understand how to close a business confidently.
What does it mean to dissolve a business in Kenya?
When it is the end of a business, you have to ensure that you legally close that business here in Kenya. It can involve ceasing operations, settling debts, and removal from the Business Registration Service (BRS) registry.
This would apply to a company limited by shares, an LLC, or a partnership. You may want to dissolve a business legally if it’s inoperative, unprofitable, or served its purpose, such as completing a project.
The Kenyan law allows you to close a company if it’s dormant or you are moving on to new ventures.
Following the closure laws leaves no surprises, such as debts or penalties later.
Who Can Dissolve a Company?
In Kenya, not everyone can wake up today and dissolve a business; it depends on the company’s nature.
For example, where shares limit a company, the Companies Act 2015 (Section 897) prescribes that directors or shareholders must have a special resolution to close a company.
LLC members do that primarily by majority vote. All partners usually need to agree on legally dissolving a partnership unless your partnership agreement allows one partner to act. If there’s a disagreement, it is uncommon for a court to intervene, but it may do so if necessary.
Such a case can be helped by a business dissolution lawyer because, in complicated cases, this might ensure that the business dissolution requirements are met.
Knowing who can dissolve a business legally is essential because it maintains fairness and avoids quarreling at a later stage.
Steps to Legally Dissolve a Business in Kenya:
There are real-life steps toward making that happen. Be it steps on how to shut down an LLC or steps to dissolve a corporation, these steps cover almost every case.
Step 1: Pass a Special Resolution
For a company, you should call a board meeting during which a special resolution to dissolve the business legally will require the support of at least 75% of the shareholder votes –Section 141, Companies Act.
Usually, your agreement would state that all partners would have to concur. LLCs require a majority of members to sign off. Put this in minutes and file Form CR19 with the BRS. It is this step that ensures the legal closure of a company.
Step 2: File Articles of Dissolution
Filing the articles of dissolution involves submitting Form CR18 (Application to Strike Off) to the BRS via the eCitizen portal. This form indicates that you are seeking the legal dissolution of a business. The complete set must contain the special resolution and the latest annual returns.
The dissolution of an LLC follows almost the same procedure. A partnership is required to use Form BN/6 for cessation. The BRS will assess your application to verify whether dissolution has met the necessary conditions. This is the first official step in the closure of a company.
If you need help with this you can contact us and let us help you get through the process smoothly.
Step 3- Notifying Creditors
Creditors should be notified of the dissolution by sending letters to anyone owed money, including banks and suppliers. Kenyan law (Section 900) requires creditors’ notification within 7 days of filing CR18. This gives creditors a chance to claim the debt, which is usually set at 3 months.
This will safeguard you from any future inconveniences with the legal dissolution of a business. If there are debts in an existing business, you must cancel all debts before selling any assets.
Step 4: Liquidate Business Assets
Liquidating business resources means selling inventory equipment or property to pay debt obligations. Thereafter, any remaining monies or assets are distributed amongst shareholders or partners by the provisions of the business structure.
For example, the LLC winding-up procedure stipulates that the leftovers should be shared among members after creditors pay.
Companies would be governed under the same rules in the Insolvency Act 2015. Keep sale records to substantiate further that you dissolved a business legally and fairly.
Step 5: File Final Tax Return
Taxes do not evaporate at the company closure. Ensure you file the final tax return business with the Kenya Revenue Authority (KRA) for any dues. Then, apply to cancel the EIN IRS; this means deregistering the KRA PIN in Kenya.
Accompany KRA with a letter about the dissolution notice from BRS. In case KRA finds unpaid taxes, it’s only then that you can dissolve a business legally if such taxes have been cleared.
Taking this step will ensure that tax implications on dissolving a company do not come back to haunt you later.
Step 6: Cancel Licenses and Permits
Don’t forget to cancel business licenses and inform the county governments or the regulatory authorities (like for trade licenses) about your closure.
For example, legally closing a business such as a restaurant would include canceling health permits. The eCitizen portal should also be updated to reflect your closed status.
This will help ensure that you have complied with all the requirements for dissolving a business and retain no liability due to an inactive license.
Step 7: Gazette Notices
The final step includes two notices from BRS appearing in the Kenya Gazette. The first notice serves to advertise its intention to dissolve a business legally for 3 months to allow the public to lodge any objections (e.g., unpaid creditors).
In this case, where there are no objections, the second notice will confirm that the company is struck off, and hence, the business is dissolved. It finally sorts out how to close down a business in Kenya lawfully.
Common Challenges and How to Avoid Them
The closing of a business may not always be smooth. A common difficulty is unpaid taxes, which hinder KRA PIN cancellation- KRA halted dissolutions of companies owing KSh 1.15 billion in 2022-23.
Other essential closure requirements, such as filing annual returns, can cause delays. If you have not adequately notified creditors of dissolution, any of them could object within the Gazette period.
Therefore, it is best to have a quick compliance checklist before legally dissolving a business. A business dissolution attorney would understand corporate dissolution laws and would be helpful, especially in complex situations with potential disputes like dissolving a partnership legally.
Plan out early to pay off debts and keep records for tax avoidance from the consequences of business dissolution.
Why Dissolving Properly Matters in Kenya
You might get into legal scuffles if you do not dissolve a business lawfully. According to Kenyan business closure laws, an improperly closed company might still face tax penalties or creditor claims.
Directors themselves could be personally liable for the debts. So, properly closing a business will save you reputation and money: you will not feel the encumbrance as you move on.
A checklist for closing the business will keep you legal and include things like filing dissolution articles and liquidating business assets before you forget.
When legally dissolved, a business leaves more baggage in capable hands to face fresh situations. It means one can start fresh confidently after ensuring the first stop has been rounded up.
Conclusion
Closing a business legally in Kenya is not too difficult. The procedure is simple: pass a resolution, fill out the forms, and settle obligations, and you can easily dissolve a business legally.
Whether it is closing an LLC, a company, or a partnership, the Kenyan law provides a straightforward way to terminate a business legally. Avoid future headaches; take time to dissolve a company legally.
Reach out to a Kenyan lawyer or business dissolution attorney, or check out more resources to ensure a smooth exit.
FAQs
Can a dissolved company go about its operations?
No, a dissolved company can no longer operate. The Companies Act of 2015 states that everything is done as soon as you are legally dissolved, and no trading, contracts, or activities. This is an illegal act and could attract fines. The option to revive would need to be restored via court or BRS.
Can one partner dissolve a business?
Not usually. To dissolve a business, partnership partners must agree unless your agreement gives one partner unilateral standing in that dissolution-type case. Courts often have to settle disputes, and this can get ugly. Consult an attorney about business dissolution to learn how to do this properly.
What if I neglect to dissolve the business?
Not dissolving a company properly will lead to penalties that include KRA fines for unpaid taxes and suit by a creditor. Directors may also be held personally liable for debts. Complying fully with business closure will save you from trouble and protect you.
How long does it take to dissolve a business in Kenya?
Four to six months. Filing CR18 is relatively quick, but the three-month objection period in the Gazette is the main thing that prolongs the process. Delays caused by taxes or creditors can only make the whole process lengthier. It is wise to plan ahead for a seamless closure of a company.
Should I employ a lawyer to dissolve my business?
You may or may not require one, but hiring a lawyer in Kenya is suitable for complex cases, disputes, or heavy debts. You can go through the steps for any simple cancellation yourself, but some consulting will ensure that you follow the requirements for business dissolution.
