Many parents wish to involve their children in family businesses or create long-term wealth through company share ownership. However, under Kenyan law, children under the age of 18 do not have the legal capacity to enter into binding contracts. Since share ownership creates a legal relationship between a shareholder and a company, a child cannot directly acquire or hold shares independently.
To address this limitation, the law permits shares to be held on behalf of a child by an adult, typically a parent or legal guardian. In such cases, the adult’s name appears in the company’s register of members, while the shares are held for the benefit of the child. The adult assumes the legal responsibilities associated with the shares, while the child remains entitled to the economic benefits, including dividends, and future proceeds from the shares.
While this arrangement is widely used, it presents certain risks. Where shares are held directly by a parent or guardian on behalf of a child, they may become entangled in the adult’s personal affairs, including debt claims, or legal disputes matters.
A more secure and effective structure is the use of a Family Trust. Under this arrangement, shares are registered in the name of the trust rather than in the name of an individual parent or guardian. This separates the shares from personal assets and provides an additional layer of protection for the child’s future interests.
A Family Trust also enables parents to establish clear rules governing the management and distribution of the shares. Trustees may, for example, apply dividends towards a child’s education, healthcare, maintenance, or welfare while retaining control of the shares until the child reaches a specified age or level of maturity. This ensures that valuable assets are managed prudently and, in the child’s, best interests.
From a corporate governance perspective, trusts provide greater certainty and operational efficiency. Trustees are legally empowered to make decisions, execute documents, and exercise shareholder rights on behalf of the trust. This enhances business continuity.
Family Trusts further serve as an effective succession-planning tool. Because a trust continues to exist independently of its founders, the shares remain protected even upon the death of a parent or guardian. This allows wealth and business interests to pass seamlessly to future generations without unnecessary delays, disputes, or disruption.
Don’t leave your children’s financial future to chance. At Kenbiz Registrars, we specialize in structuring robust Family Trusts that protect your business assets and seamlessly pass wealth to the next generation.
Email us: info@kenbizregistrars.com
