Estate Planning Made Practical: The Power of Family Companies
Effective estate planning ensures that wealth is preserved, protected, and passed on seamlessly to future generations. Among the various tools available, family-owned companies—typically structured as private limited liability companies—have emerged as a strategic solution, particularly for high-net-worth individuals and business families seeking a structured and controlled method of succession.
What Is a Family-Owned Company?
A family-owned company is a private limited company where majority ownership and control are retained within the family, often spanning multiple generations. It may hold a range of assets including real estate, investments, and business interests, which are distributed through shares held by family members.
Under Kenya’s Income Tax Act (Cap. 470), particularly in the context of tax exemptions, a “family-owned company” aligns with provisions in Paragraph 36 of the First Schedule, which exempts certain transfers of property between family members and family companies or trusts.
In practice, the Kenya Revenue Authority (KRA) treats a family company as one whose shareholding is primarily held by persons related by blood, marriage, or adoption.
Important Distinction: Unlike family companies, family trusts in Kenya are restricted from engaging in commercial or trading activities or dealing with land for investment purposes—unless expressly authorized. Section 3(1) of the Trustees (Perpetual Succession) Act (Cap. 164) provides:
“The trustees of a trust shall not, except with the written consent of the Cabinet Secretary, engage in any trade or business or deal with land for speculative purposes.
As such, family-owned companies are the preferred estate planning vehicle where assets include active businesses, income-generating property, or land intended for resale, leasing, or development. Unlike trusts, companies can legally trade, develop property, and hold land for investment without special ministerial approval, as allowed under the Companies Act, 2015.
Benefits of Using a Family Company in Estate Planning
Centralized Asset Management
Transferring family wealth or business interests into a company centralizes asset ownership under a single legal entity. This simplifies administration and minimizes fragmentation of property among beneficiaries.
Continuity and Control
Shareholding and directorship structures can be tailored to allow the founder to retain control during their lifetime, while facilitating a smooth succession through share transfers to family members.
Avoidance of Probate
Assets held under the company are not subject to probate if shares are pre-distributed or held in trust. This reduces delays and disputes during estate administration.
Flexibility and Customization
A well-drafted shareholder agreement can define governance structures, voting rights, dividend policies, and dispute resolution mechanisms to maintain harmony and clarity within the family.
Potential Tax Efficiency
Certain transfers involving family-owned companies may qualify for tax exemptions under Kenyan law:
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Stamp Duty Exemption: Section 117 of the Stamp Duty Act (Cap. 480) allows for exemption of stamp duty on transfers between related parties or into a family company/trust, subject to approval by the Cabinet Secretary for the National Treasury.
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Capital Gains Tax Exemption: Paragraph 36 of the First Schedule to the Income Tax Act exempts transfers between spouses, between former spouses (in divorce settlements), and transfers to immediate family or family trusts.
It is essential to apply for and obtain formal exemption certificates from the relevant authorities to benefit from these reliefs.
Key Considerations and Pitfalls
Exclusion of Certain Personal Assets
Some assets—such as personal bank accounts, household items, insurance policies, and annuities—typically fall outside the company’s structure and require separate estate planning tools.
Governance Challenges
Operational decisions (e.g., property use, dividend distribution) require board or shareholder approval. If structures are unclear, disputes may arise over control and expectations.
Shareholding Structure
How shares are distributed has significant implications:
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Shares may be held by beneficiaries, with the founder remaining a director.
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A dual-class structure may be adopted: voting (control) shares for the founder and non-voting shares for other family members.
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Shares may also be held by a family trust, which holds them for the benefit of named beneficiaries. This enhances asset protection, succession planning, and long-term control.
✅ Trust Ownership of Shares: Holding company shares through a family trust ensures succession is managed by trustees—avoiding legal transfer issues, probate, or intestacy—and facilitates structured dividend and voting rights distribution.
Integration with Wills, Trusts and Other Tools
A family company should complement—not replace—traditional estate planning instruments such as wills and trusts.
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A will can direct the disposition of shares to heirs.
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Alternatively, shares can be transferred to a family trust, enabling trustees to manage them on behalf of beneficiaries, including minors or future generations.
The trust deed must clearly define:
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Beneficiary rights and entitlements;
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Trustee powers over company shares;
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Governance roles.
If third parties (e.g., professional investors, in-laws, or partners) also hold shares, a shareholders’ agreement is essential to define:
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Rights and obligations of the trust;
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Voting and veto powers;
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Dividend and transfer policies;
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Exit mechanisms and dispute resolution procedures.
📄 Why a Shareholders’ Agreement Matters: When a family trust co-owns a company with non-family shareholders, a robust agreement ensures the family’s interests are protected and succession goals are preserved, even if trustee decisions diverge from those of family members.
Compliance and Ongoing Management
The company must comply with corporate governance obligations, file annual returns, and maintain accurate records.
The Companies Act, 2015 allows shareholders to define:
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Share transfer mechanisms;
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Successor director appointments;
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Dispute resolution processes.
These can be set out in the shareholders’ agreement or the company’s constitution.
Conclusion: A Powerful Yet Complementary Tool
A private family company is a powerful estate planning instrument when structured properly and used alongside other tools such as wills, trusts, and powers of attorney. It is particularly effective where the estate includes active businesses, real estate investments, or trading operations.
- A family company is especially ideal for land intended for speculative investment, resale, or development, given the restrictions on trust dealings with land under the Trustees (Perpetual Succession) Act.
- Shares in such a company can be wholly or partially held through a family trust, offering enhanced protection, flexibility, and continuity. If third-party shareholders are involved, a comprehensive shareholders’ agreement is crucial to safeguard family influence and define trust participation.
Note: Professional legal and tax advice is essential. Improper structuring may lead to unintended consequences, negating the benefits of the estate plan.
Need Help Planning Your Estate or Structuring Your Wealth?
Whether you are a high-net-worth individual, a Kenyan in the diaspora, a foreign entrepreneur, or a diplomat planning retirement in Kenya, proper estate and succession planning is critical to protect your legacy across generations and borders.
CM Advocates LLP offers discreet, strategic, and comprehensive legal solutions through our Private Wealth, Family Law, Family Business & Global Mobility Practice.
We support clients in:
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Registering and structuring family trusts for intergenerational wealth;
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Forming family-owned companies with succession-ready frameworks;
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Structuring wealth for privacy, protection, and tax efficiency;
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Planning for retirement in Kenya (property ownership, residency permits);
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Managing cross-border estates (including for dual citizens and foreign nationals);
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Drafting/updating wills, family constitutions, and shareholder agreements;
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Navigating family law issues (prenups, matrimonial property, separation);
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Establishing philanthropic structures like private foundations and endowments.
Whether your assets span multiple jurisdictions or you are planning a Kenya-based estate, our team blends deep local knowledge with global best practices—so you can structure for the future with confidence.
📧 For personalized legal advice, contact us today:
cmaina@cmadvocates.com or privatewealthlawyers@cmadvocates.com
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