The Startup Bill, 2022
The Startup Bill, 2022 (the Bill) seeks to provide a legal framework to encourage growth and sustainable technological development, create a more favourable environment for innovation and attract Kenyan talents and capitals among other purposes. This is in keeping in step with Articles 11(2)(b) and (c) the Constitution of Kenya, 2010 which recognises the role of science and indigenous technologies and the promotion of intellectual property in the development of Kenya.
Under the Bill, the National and County Governments will take on a vital role which will include promoting innovation, facilitating the transfer of technology innovation, promoting the creation of employment and wealth, and promoting links between research institutions and the business community.
As the name suggests, the Bill targets Startups which it defines as innovative entities legally recognised by laws of Kenya with strong growth potential and a disruptive economic model. The Bill equally provides for Incubators which the Bill defines as legal entities whose principal object is to support the birth and development of startups, innovation, and related activities. Startups and Incubators are meant to come together under incubation programmes to foster growth of the startups.
The Bill was first read in the Senate on 15th February 2023 and is currently at the Second Reading stage of the legislative process.
The eligibility criteria for registration as a Startup and admission into an incubation programme include:
- Registration in Kenya as a company, partnership, Limited Liability Partnership (LLP) or a Non-Governmental Organisation (NGO);
- Be newly registered or been in existence for not more than three (3) years from the date of incorporation or for not more than five (5) years from the date of incorporation in case of startups in the biotechnology sector;
- Have the innovation, development, production or improvement and commercialisation of innovative products, processes or services or if it is a scalable business model as the main objectives;
- Have headquarters in Kenya;
- Non-distribution of profits;
- Be wholly owned by one or more Kenyan citizens;
- Have at least fifteen percent (15%) of the expenses attributed to research and development activities; and
- Be a holder, depositary or licensee of a registered patent or the owner and author of a registered software.
A holding company or a subsidiary of an existing company that is not registered as a startup as well as entities that are established or formed as a result of a split, reconstruction, merger or reconstitution of an existing business are not eligible for registration as a startup.
Entities seeking certification as incubators shall be required to meet the following criteria:
- Be a registered public or private limited company, NGO, LLP or limited partnership;
- Have the delivery of services to support establishment and development of innovative start-ups as its principal objective;
- Have in place facilities, suitable to accommodate innovative startups and adequate equipment for startup activities innovation;
- Be administered or directed by persons of recognised competence on business and innovation and have a structure at its disposal for technical and managerial consulting;
- Have established collaborative relationships with universities, centres of research, public institutions and financial partners that carry out activities and projects related to innovative startups; and
- Has experience in supporting innovative startups.
4. Incentives to Startups and Incubators
The Bill proposes to provide various incentives for registered Startups. The National and County Governments are tasked with supporting Startups through non-fiscal and fiscal support including tax incentives necessary for the development of Startups. Other incentives available to Startups include subsidies on their formalisation, protection of their intellectual property and support in the form of research and development activities. The Bill proposes the establishment of a platform to provide Startups with information at the national and county levels on existing Incubators, available training programmes, mentors and resource persons, projects under existing incubation programmes, available fiscal and non-fiscal support services and business information necessary for the management and development of Startups.
The Bill also proposes the formation of a Credit Guarantee Scheme for the development and growth of Startups by providing accessible financial support to Startups, availing of financial and credit information to startups, and capacity building on financial and risk management.
The Kenya National Innovation Agency (the Agency) established under Science Technology and Innovation Act will also be tasked with assisting Startups in the application for registration, grant, revocation and institution of legal action for infringement of intellectual property rights as well as filing and registration of intellectual property at the international level.
The Bill is inspired by the rapid growth seen in the Kenyan startup ecosystem and seeks to fan the flame by providing an enabling environment for the growth and development of startups in Kenya. The Bill aims to provide a much-needed regulatory framework to govern startups including the creation of incubation hubs for registered startups, certification of incubators and various incentives available to startups. The Startup Bill, 2022 is therefore one of the pieces of legislation worth a keen follow, especially in view of Kenya’s recognition as the “Silicon Savannah”.
If you have any queries relating to the above, please do not hesitate to contact Bernard Musyoka or Steven Waweru. Please note that this publication is meant for general information only and should not be relied upon without seeking specific subject matter legal advice.
By Steven Waweru.
July 28, 2023