Do you Register your Chama as a Company or as a Community Group in Kenya? Some Tips

So you and your friends or family have decided to start a chama, a fantastic way to save and invest together. But before you dive in, a crucial decision needs to be made: how will you register your chama? Two main legal frameworks exist in Kenya: the Companies Act, 2015 and the Community Groups Registration Act, 2022. Each has its own set of advantages and disadvantages, and the best choice depends on your chama’s goals and ambitions.

Companies Act, 2015: Built for Business

Imagine your chama as a full-fledged business. The Companies Act is your go-to option in this scenario. Here’s what it offers:

1. Limited Liability Protection: This is a big one. If your chama runs into debt, your personal assets are shielded. Only the chama’s funds are on the line.
2. Easier Capital Raising: Need extra cash to grow your chama’s investments? Companies can raise capital by issuing shares to interested parties.
3. Credibility Boost: A company registration presents a professional image, potentially attracting investors or business partners.
4. Quicker Setup: Registering a company is likely to be more straightforward and quicker than a community group.
5. Perpetual Existence: Whereas there are annual filing requirements, a company continues to exist without having to apply for renewal of certificate.

Sounds perfect, right? Not so fast. Here are some drawbacks to consider:

1. Compliance Complexities: Companies face stricter rules. Annual reports, meetings, and separate financial accounts are mandatory, which can be complex and expensive to manage.
2. Tax: As a company, you’ll likely pay corporate tax on your profits.
3. Less Flexibility: Companies have a more rigid structure compared to community groups.

Community Groups Registration Act: Simpler and Focused

If your chama prioritizes shared goals and community development over profit-making, the Community Groups Registration Act might be a better fit. Here’s why:

1. Simpler Setup: Registering a community group is likely to be cheaper than a company.
2. Flexibility Reigns Supreme: Community groups can more flexibly tailor their rules and procedures to their specific needs, offering more freedom in how you operate.
3. Shared Goals in Mind:  This structure is designed for groups with common interests, perfectly aligning with a chama’s purpose.
4. Tax Advantages: Community groups may enjoy a simpler tax structure compared to companies.

Of course, there are some downsides to consider as well:

1. Limited Liability Risk: Depending on your specific agreement, members might be held personally liable for the group’s debts.
2. Raising Capital Challenges: Community groups typically can’t raise capital by issuing shares like companies.
3. Automatic Expiry of Registration: 2 years after set up, and annually thereafter, a community group must apply for a renewal of its registration. Persistent default to apply for renewal leads to automatic dissolution.
4. A New Law: The Community Groups Registration Act is relatively new (2022), and its legal framework might be less established compared to the Companies Act.

So, Which Way to Go?

The choice boils down to your chama’s vision.

If you aim to run a profit-driven business venture, the Companies Act provides stronger legal protection and access to capital.

However, if your focus is on collaborative saving, community development, and a more informal structure, the Community Groups Registration Act offers a simpler and potentially more tax-friendly option.

Remember, this is just a general overview. Consulting with a lawyer or relevant authorities is highly recommended to get the most up-to-date information and ensure you choose the right legal structure for your specific chama.

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