With the dramatic increase in the globalization of the economy in all market sectors, the ‘joint venture’ has become the vehicle of choice to expand into new areas of business and new markets for a variety of reasons. First and foremost a company can minimize or soften its financial risk by sharing the risk of expansion into a new geographical or product market by seeking a partner with similar expertise in the target market to share the risk. Even if capital risk is not a concern, many large enterprises worldwide will choose a joint venture for the purpose of spinning off a business not part of its ‘core’ business base, as opposed to selling the non-essential business, and assume a passive role in the joint venture. Whatever the reason for establishing a ‘joint venture’, the venture partners must carefully plan all aspects.

International Joint Ventures

Although joint ventures can be local or international in scope, the focus of this brief synopsis will be limited to ‘international joint ventures’, which simply means a business combination of two or more partners from different jurisdictions with an enterprise that will cross one or more borders and the governing law of the joint venture entity will be ‘foreign to one of more of the joint venture participants.

In the context of an international joint venture, the parties would elect to carry on the venture through a Company Registered under the Companies Act or a Foreign Company Registered in Kenya.

Regulation of exempted companies is not onerous and the primary regulatory steps are prior to incorporation and include filing an application with the Capital Markets Authority (“CMA”) to obtain permission to incorporate the relevant company. The application would disclose who the proposed beneficial shareholders will be and each beneficial shareholder would be required to file a Personal Declaration Form which is filed with the CMA when submitting the application to incorporate.

Tax Exemption

Under current Kenyan law, there is income tax, withholding tax payable by all companies with respect to their income. It is possible to obtain an undertaking from the Minister of Finance in Kenya under the relevant Law specific exemption from certain provisions of Tax that, in the event of there being enacted in Bermuda any legislation imposing tax computed on profits or income, or computed on any capital asset, gain or appreciation, or any tax in the nature of estate duty or inheritance tax, such tax shall not be applicable to the company, except insofar as such tax may apply to persons ordinarily resident in Kenya for foreign exchange control purposes who hold shares, debentures or other obligations of the exempted company or such tax as may be applicable to any property within Kenyan leased or let to the exempted company.

Similarly, under current Kenyan law, there are no exchange control restrictions of any kind relating to the joint venture vehicle or any of its undertakings. Unlike many other jurisdictions, Kenya will permit the joint venture exempted company to deal in any foreign currency free of exchange controls.

Similarly, there are no restrictions on foreign ownership of a Kenyan company other than CMA approval of any new shareholder that intends to hold 5% or more of the joint venture company