Proposed Provision for Amendment Proposed Amendment Our Comments
Preamble Long Title The Bill proposes a law to provide for the framework to encourage growth and sustainable technological development and new entrepreneurship; employment; to create a more favourable environment for innovation; to attract Kenyan talents and capital; and for connected purposes. The proposed law seeks to govern the interactions and relationships between the government, incubators, startups, investors, and the ultimate consumers of innovative products.
Clause 2 Interpretation Credit Guarantee Means the guarantee of monetary liabilities, excluding technology guarantee borne by an enterprise.
Innovation
(Defined as is in the Science, Technology and Innovation Act, 2013)
Includes:

  1. a technovation model, utility model or industrial design within the meaning of Industrial Property Act, 2001;
  2. a product, process or idea which is novel;
  3. an improved use of new product, service, or method in industry, business or society;
  4. indigenous or traditional knowledge by community of beneficial properties of land, natural resources, including plant and animal resources and the environment; or
  5. any other non-patentable creations or improvements which may be deemed as deserving promotion or protection or sui generis intellectual property rights and innovator shall be construed accordingly.
Startup Includes technology-based innovative entity, legally recognised by the laws of Kenya, with strong growth potential and a disruptive economic model.
Startup incubator or Incubator Means a company, partnership, non-governmental organisation or limited liability partnership, whose principal object is the support of the birth and development of start-ups, innovation, and activities related to the transfer of technological and research, development, and innovation process, through the offer of dedicated physical spaces and services advice.
Clause 3 Object of the Bill The Bill proposes the following object:

  • Fosters a culture of innovative thinking and entrepreneurship;
  • Registration of startups;
  • Linkage of start-ups with private investors, financial institutions, the private sector, research institutions and such other institutions at the county, national and international level;
  • Facilitate investments in startups;
  • Facilitate the provision of fiscal and non-fiscal support to startups in Kenya;
  • Promotes an enabling environment for the establishment, development, conduct of business, and registration of startups;
  • Establishment of incubation facilities at the National and county levels of government;
  • Establish an environment that promotes the establishment of startups; and
  • Monitoring and evaluation of the legal and regulatory framework to encourage the development of startups.
The overarching role of the Bill is to set up an ecosystem where startups may be created, supported, and to enhance them spill over into the various sectors of the economy.

The National economic blueprint is heavily reliant on the technology and innovation which so far remains unregulated. The proposed regulation of disruptive startups is a means to an end. It is meant to support the digital economy and the knowledge economy.

Clause 4

Role of National and County Governments

The Bill proposes that the County and National Governments shall:

  1. Promote innovation;
  2. facilitate the transfer of technology innovation;
  3. create and develop a sustainable, globally competitive technology innovation sector that contributes towards the accelerated growth of the economy;
  4. promote the creation of employment and wealth creation; and
  5. promote the linkages between universities and research institutions and the business community.

Further, the Agency and the county executive committee members shall:

  1. put in place a national and county incubation policy framework for the development of the business incubation sector and startup system;
  2. enter into partnerships with local and international business incubators in order to promote the establishment and growth of startups in Kenya;
  3. establish programmes for the certification and admission of incubators into the incubation programmes;
  4. put in place mechanisms that promote the development of business incubation programmes;
  5. create an enabling environment for the promotion of business incubators including fiscal and non- fiscal incentives to incubators and startups;
  6. establish public online and other platforms for access to information including the establishment and development of startups, existing incubation programmes, access to fiscal and non-fiscal support;
  7. keep and maintain a directory of startups and incubators;
  8. support any research and development activities undertaken by startups;
  9. put in place mechanisms for preincubation of entities and for this purcpose, provide training and capacity building programmes for registered startups;
  10. put in place mechanisms to enable access to entities from marginalized groups through the use of quotas or mechanisms that match them to unused capacity in existing programmes; and
  11. put in place facilitative structures that ensure the protection of the innovations of startups at the national and international level for the protection of the intellectual property.
Innovative entrepreneurial activities do not happen randomly or in a vacuum but requires enabling conditions hence, the Bill proposes to mandate the National and County Governments to provide economic conditions such as incentives, opportunities, and to remove barriers to innovative businesses, thinking and ideas.
Clause 5 Establishment of the Incubation Programmes The Bill proposes the establishment of incubation programmes and empowers the agency and the members of the county executive committee to:

  1. develop standards and guidelines to regulate the relationship between an incubator and a startup;
  2. establish an online platform setting out information on existing incubator programmes, incubators and startups and the process of registration and admission into the programmes; and
  3. prescribe a criteria for the evaluation of entities, programmes and structures set up for the purposes of implementing the Act.
As the country moves away from resource driven economy to a knowledge driven economy, there is a huge incentive in setting up incubation programmes that will assist startups to grow. These programmes will provide an enabling environment for infant technologies, ideas, and industries to grow.
Clause 6 Appointment and functions of Registrar and other officers The Bill proposes to task the Agency with the registration of startups and establishes the Registrar of Startups who shall be:

  1. Competitively recruited by the Public Service Commission;
  2. Appointed by the Agency on such terms and conditions as the Agency may, in consultation with the Salaries and Remuneration Commission, determine;
  3. The Agency in consultation with the Public Service Commission appoint a Deputy Registrar and such number of County Registrars in the counties as shall be necessary for performance of the functions of the Registrar and who shall be subject to the directions of the Registrar.
The Science and Technology Innovation Agency (“the Agency”) is well suited to register innovative startups due to its immense expertise in innovative and technological programmes.

Registration helps in monitoring startups with various compliance requirements such as maintaining a certain level of growth objective and other business laws.

Clause 7 Functions of the Registrars The Bill mandates the Registrars of startups to:

  1. Keep an updated database of all registered startups and startups under review indicating;
    1. Business development stage;
    2. Ownership;
    3. Description of the innovative aspects of the company, including intellectual property rights;
    4. Products and services offered;
    5. Investment support received;
    6. Financial needs; and
    7. Target market.
  2. Register and supervise startups registered under the Act to ensure compliance with its provisions;
  3. Maintain the Register of all the startups in the country;
  4. Keep all document and records of registered startups;
  5. Enforce the decisions of the Board of the Agency with respect to the registration, regulation, and supervision of startups under this Act;
  6. Coordinate the functions of the County Registrars;
  7. Perform such other functions as may be necessary for the implementation of the Act or as may be specified under any other law.

Further, the County Registrars and Assistant Registrars shall—

  1. facilitate the registration and development of startups;
  2. receive applications for registration of startups;
  3. monitor and evaluate startup projects; and
  4. carry out such duties as may be delegated from time to time
This proposal is in line with the Companies (Beneficial Ownership Information) Regulations, 2020 which required all companies whether public or private to provide sufficient company details to the registrar including the details of its beneficial owners.
Clause 8 Eligibility for admission into the incubation programme An entity shall be eligible to be registered as a startup and for admission into an incubation programme if the entity;

  1. is registered company under the Companies Act; or partnership firm under the Partnership Act; or limited liability partnership under the Limited Liability Partnership Act; or non-governmental organization under the Non-Governmental Organizations Co- ordination Act;
  2. is newly registered or has been in existence prior to the coming into force of the Act; for a period of not more than seven years from the date of its incorporation or registration; and in the case of startups in the biotechnology sector, the period shall be up to ten years from the date of its incorporation or registration;
  3. has as its objects; the innovation, development, production or improvement and commercialization of innovative products, processes or services or if it is a scalable business model;
  4. has its headquarters or a branch in Kenya;
  5. is at least one third owned by one or more citizens of Kenya; and
  6. at least fifteen percent the entity's expenses can be attributed to research and development activities.

The Agency may develop alternative criteria for startups that do not satisfy the requirements of subsection (1) for registration as startups and for admission into incubation programme

The Act shall not apply to an entity which is established or formed as a result of the split, reconstruction, merger or reconstitution of an existing business; or a holding company or subsidiary of an existing entity which is not registered as a startup.

Incubation is meant to support nascent ideas, innovations, and technologies financially. Not all startups necessarily have the potential or ability to disrupt any sector of the economy, there must be a means of identifying qualifying startups that are innovative, researched based and with technological components.

Although the proposed qualifying criteria are good, there is need to narrow the scope to reduce the number of startups that may qualify for admission into the incubation programme. As it stands, the floodgate for admission is wide open and may thus be misused and ultimately defeat the purpose. For example:

  • there should be a cap on the amount of turnover for an entity to qualify for admission into the incubation programme.
  • there should be a cap on permissible sectors of the economy which may be determined through exclusion method; and
  • Research and development with a technological edge should be a major factor.
Clause 9 Application for admission into an incubation programme An entity that qualifies for admission into an incubation programme under section 8 may submit an application, in the prescribed form:

  1. in the case of an incubation programme managed by the Agency, Ministry or any other entity on behalf of the National Government, to the Agency; or
  2. in the case of an incubation programme managed by a county government, to the county registrar.

An applicant for admission shall be accompanied by:

  1. a statement setting out the following information: the name of the entity; the general nature of the proposed business of the entity; a declaration form stating whether an entity has complied with eligibility requirements; the proposed registered address of the entity; the entity's place of incorporation or registration; the entity's registration number; and the registered address of the entity to which all communications may be addressed;
  2. a letter of recommendation or support which may include a letter: a patent or trademark registered in Kenya; statement on information regarding the elements inherent in the economic model of said entity including-
    1. innovation aspects;
    2. factors differentiating the factors of realization of the strong potential of economic development;
    3. scientific and technical qualifications and the experience of the project team;
    4. a prize or reward obtained and any patent for invention filed;
  3. the certificate of incorporation or registration of the entity; and
  4. a brief description of the innovative nature of the product or service.

The Agency and the county executive committee members shall put in place mechanisms to ensure that the admission process of an entity under this section is simple, efficient, accurate and transparent and shall, for this purpose —

  1. establish an online platform for the submission of the documents and information specified under subsection (1); and
  2. devolve and decentralize the registration process to the lowest devolved unit and may establish such registration desks as may be necessary to enable access to registration
This means that admission into the incubation program will not be automatic for all startups. Startups requiring incubation support must, as pointed out above, demonstrate;

  • innovation aspects;
  • factors differentiating the factors of realization of the strong potential of economic development;
  • scientific and technical qualifications and the experience of the project team;
  • a prize or reward obtained and any patent for invention filed;

This way, the Agency is able to sieve startups that are innovative, disruptive and have the potential to create massive employment upon fruition.

Clause 10 Consideration of Application and Registration The Registrar or the County Registrar, as the case may be shall, within thirty (30) days upon receipt of an application for admission into the incubation programme:

  1. examine the application together with the documents;
  2. if the Registrar or the County Registrar considers it necessary, call for such further information or carry out such inspections as he or she may consider necessary for the determination of the application.

Where the Registrar or the County Registrar is satisfied that an applicant meets the requirements for registration, the Registrar or County Registrar shall, subject to the provisions of the Act, enter the name and particulars of the applicant in the register of startups kept for that purpose.

The registration process is fast-tracked to facilitate ease of starting the business and doing business. Reducing legal formalities and bureaucracy is itself an incentive.
Clause 11 & 12

Certificate of Registration

And

Effect of Admission into the Incubation Programme

The Registrar or County Registrar, as the case may be, shall, upon entering the name of the applicant in the register, issue to the entity, a certificate in the prescribed form and certificate of admission into an incubation programme shall be conclusive evidence that the startup—

  1. has met all the requirements for registration specified under the Act;
  2. has been duly registered in accordance with the Act unless it is proved that the registration of the startup has been cancelled.
This is in line with business operation policies and consumer protection imperatives, all businesses must have certification certificates of operation or licenses.

It also helps the startup to benefit from the exemptions afforded to the startups admitted into the incubation program.

Clause 13

Refusal to Admit an Entity into the Incubation Programme

The Registrar or county registrar may reject an application for the admission of an entity where—

  1. the entity has submitted false or misleading information in its application;
  2. the application does not comply with the provisions of the Act;
  3. the entity does not meet the criteria specified under the Act for the registration of a startup; or
  4. the objects of the entity are likely to be pursued for an unlawful purpose or used for a purpose incompatible with public interest.

The Registrar or county registrar, as the case may be, shall notify the applicant, in writing, of the decision to reject an application for admission within fourteen days of such rejection.

Since admission into the incubation programme is not automatic, fairness and natural justice requires prompt feedback that is clear and unambiguous.

Where an application is refused for not meeting the criterion, the registrar must give reasoned decision so as to enable the applicant to gauge their case and determine if they should resort to a higher authority or court process. This prevents discrimination.

Clause 14

Application from an order of refusal or de-registration

A person who is aggrieved by the decision of the Registrar or county registrar under this Part may, within thirty (30)  days of being notified of the decision, apply to the Cabinet Secretary for a review of the decision.

An application for review shall be in such form as the Cabinet Secretary shall prescribe.

The Cabinet Secretary shall determine an application under subsection (1) within sixty (60) days of receipt of the application under subsection (1) and may confirm, vary or reverse the decision under review.

Although this proposal may be deemed fair and just in an open democratic society, it is not enough. There should be recourse to a judicial authority to examine the actions of these administrative offices. For instance, if the Cabinet Secretary confirms the decision of the Registrar and the Applicant does not agree with both decisions, there should be a right of Appeal to the High Court, or any tribunal established for that purpose.
Clause 15

Register of Startups

The Registrar shall keep and maintain a register of —

  1. all startups registered under the Act specifying; the name of the startup; the members of the startup; the address of the startup; and such other particulars as the Registrar may from time to time determine; and
  2. all de-registered startups; and all startups which have voluntarily deregistered under the Act.

Any person may inspect the register and obtain a copy of, or an extract from the Registrar upon payment of such fee as the registrar shall determine.

The office of the registrar of startups just as the registrar of companies plays an essential role in fostering business culture and monitors compliance with laws and government directives. It serves as a true record of the activities of the company which help investors and consumers to make their decisions.
Clause 16

Alteration of Register

The Registrar or County Registrar, as the case may be, may, from time to time, make changes or corrections in the register relating to any entry.

Any change or correction in relation to an entry made pursuant to a notice issued by a startup shall be made to the Registrar as soon as it is practicable after receipt of an authenticated notification thereof.

This is good law as it protects consumers and the investors who deal with the startups in official capacity. The records of the startup must reflect what is in the office of the registrar.
Clause 17

Change of Particulars

A startup that makes a change to any of its particulars shall, within thirty (30) days of such change submit to the Registrar information regarding the change.

Upon receipt of the information under subsection (1) and where the Registrar is satisfied that the change does not affect its status of registration as a startup, enter the changes in the register kept by the registrar under this Act.

This proposed law is in harmony with the various laws which requires companies, partnerships, NGOs, societies and saccos to regularly update the registrar either where there are changes or yearly as required by law.

Further, beneficial owners must always be registered with the office of the registrars of companies, hence it is important for startups to abide by the law.

Clause 18

Obligations of Registered Startups

A startup registered under the Act shall—

a) be encouraged to achieve growth goals related to the number of human resources, total assets and the annual turnover set by a regulations;

b) maintain accounting in accordance with the legislation and arrangements in place for the work and submit its annual financial budgets to the Agency no later than thirty first day of March in each financial year; and

c) inform the Agency of a change in its structure, composition or object within a period of one month from the date of the change

These obligations are important to ensure the startups are monitored in terms of development, and growth. It also helps the Agency to ascertain or determine if a startup should be admitted into the incubation programme or removed.
Clause 19

Eligibility for Admission into an incubation programme

An entity may be certified as an incubator, if the entity—

a) is registered as a public limited company, a non- governmental organization, a private limited company, a limited liability partnership or a partnership;

b) has its principal object the delivery of services to support establishment and development of innovative startups;

c) has in place: facilities, suitable to accommodate innovative startups; and adequate equipment for startup activities innovation;

d) is administered or directed by persons of recognised competence on business and innovation and has a structure at its disposal for technical and managerial consulting;

e) has established collaborative relationships with universities, centres of research, public institutions and financial partners that carry out activities and projects related to innovative startups.

The set criteria ensures that there is a threshold of supportive infrastructure that can help startups access skillset talents, finances, and technological capacity.
Clause 20

Certification of

Incubators

An entity that meets the criteria specified under Clause 19 may apply for admission as an incubator by submitting an

application together with a statement. setting out information under subsection (2) —

a) in the case of an incubator programme managed by the Agency, to the Registrar; and

b) in the case of a programme managed by the County government, to the County Registrar.

A statement complies with this subsection if it contains the following information relating to the incubator—

a) address of the incubator;

b) principal object;

c) brief description of the projects carried out;

d) expenditure on research and development;

e) list of shareholders;

f) list of investor companies;

g) educational qualifications and professional experiences of members and staff;

h) the existence of professional relationships, of collaboration or commercial with other incubators, investors institutional and professional, universities and research centers;

i) last financial statements filed;

j) list of industrial property rights and intellectual property rights.

Incubators’ certification is a prerequisite since it ensures that incubators meet all the technical capacity, technological knowhow, and the right conditions or environment to support startups.
Clause 21

Withdrawal from an Incubation Programme

The Agency shall, in consultation with the county executive committee members, prescribe standards and guidelines to be adhered to by a startup or an incubator that intends to withdraw from an incubation programme established pursuant to the Act.

The Agency or a county executive committee member may, where an incubator fails to adhere to or meet the requirements under the Act, revoke the admission of the incubator in accordance with the guidelines prescribed by the Agency.

An entity cannot remain in incubation forever, thus, there must be compulsory means of expulsion from incubation. Either by attaining a certain capital threshold or specified number of years.

The baseline, however, should be if joining an incubation program is voluntary through application, then withdrawal should equally be voluntary. This ought to be done in a systematic manner to avoid wastage of resources and that a startup is able to sustain itself once out of incubation.

Clause 22

Obligations of an Incubator

An incubator registered under the Act shall:

a) support novice technological entrepreneurs at the earliest stage of technological entrepreneurship;

b) have a defined minimum and maximum technological innovation projects it can handle simultaneously;

c) facilitate technological innovators to implement their ideas and form new business ventures;

d) determine the technological and marketing applicability of a technological innovation idea;

e) have a viable research and development plan and expertise;

f) provide secretarial and administrative services to startups;

g) create investment opportunities for the private sector, including for venture capitalists; and

h) transfer technologies from research institutions and into the technological startups' industry.

An incubator must have the capacity, technological knowhow, and the favourable conditions to enable it to support startups.
Clause 23

Incentives for Incubation

The National and County governments shall support incubators through capital grants, fiscal and non fiscal support. Innovative entrepreneurial activities do not happen randomly or in a vacuum hence, the bill proposes to mandate the National and County Governments to provide economic conditions such as incentives in form of grants in addition to removing barriers.
Clause 24

Support to Startups

The Agency and the county executive committee members shall put in place measures to support the establishment and development of startups and shall, for this purpose

a) subsidise the formalisation of startups;

b) facilitate the protection of the intellectual property of innovations by startups in Kenya and with international organisations;

c) provide fiscal and non-fiscal support to startups admitted into incubation programmes under the Act;

d) provide support in the form of research and development activities; and

e) provide such other support to enable the development and growth of startups registered under this Act

The easier the creation of startups the better for the investors in startups. The ease of doing business determines the startups spill over.
Clause 25

Credit Guarantee Scheme

The Cabinet Secretary may, in consultation with Board of Trustees of the Fund and where necessary for the development and growth of startups under the Act, establish a credit guarantee scheme.

Where the Cabinet Secretary establishes a credit guarantee scheme under subsection (1), it shall have as its objectives—

a) the provision of accessible financial support to startups;

b) a framework for credit guarantee for startups;

c) guarantee for investors in startups;

d) availing of financial and credit information to startups;

e) capacity building on financial and risk management to startups.

Where a credit guarantee scheme is established pursuant to subsection (1), the Cabinet Secretary shall ensure that there is in place—

a) a strategy and operational goals that are aligned to the objectives under subsection (2);

b) a criteria for eligibility and qualification for recipients of funding under the Scheme;

c) a criteria for the monitoring and evaluation of projects undertaken under the Scheme and the efficiency of the operations of the Scheme;

d) mechanism for transparency, accountability and reporting on the activities of the Scheme

This is a good initiative to attract talent and investors in the startups ecosystem in the country.
Clause 26

Training and Capacity Building

The Agency shall put in place a programme for the training and capacity building of startups under the Act and shall, for this purpose establish a platform setting out information at the National and County level of government, on—

a) existing incubators;

b) available training programmes;

c) mentors and resource persons;

d) projects under existing incubation programmes;

e) available fiscal and non-fiscal support services;

f) business information necessary for the management and development of startups;

g) such other information as the agency shall, in consultation with the county executive committee member consider necessary.

Startups are part of the move to knowledge economy from resource driven economy. As such, it is very important to ensure continuous training and facilitate acquisition of skills that are innovative and novel.
Clause 27

Application for Grant or Revocation of Patents

The Agency shall facilitate startups in the —

a) application for registration, grant, revocation and institution of legal action for infringement of intellectual property rights; and

b) filing and registration of intellectual property at the international level.

This is a good initiative because startups are business organizations that must comply with the patents rights and equally benefit from the protection of brand or patents infringements.
Clause 28

Fiscal Incentives

The Cabinet Secretary shall, in consultation with the Cabinet Secretary responsible for matters relating to finance, put in place measures for the granting of fiscal incentives including tax incentives as shall be considered necessary for the development of startups in the country Incentivization is crucial for startups since most of the time they lack capital and tax burdens make them dwindle instead of growing especially in the early stages.
Clause 29

Growth Objective

A startup shall be encouraged to cumulatively achieve growth objectives as set out by the Cabinet Secretary by regulation. So far, it is unclear how the law will regulate the growth objectives for the startups. Nonetheless, startups need to have projections on the expected yearly turnover, employment creation, and expansion.
Clause 30

Regulations

The Cabinet Secretary may make regulations generally for the better carrying out of the provisions of the Act and may make regulations—

a) on the conditions and process for the exemption of startups from registration fees;

b) on workplace and labour issues with employees, independent contractors, and service providers;

c) on commercial transactions, including product development, production, corporate partnering, advertising, marketing, and sales;

d) on employee benefits and compensation;

e) on protection of intellectual property rights;

f) on the relationship between founders and employees;

g) on the exemption of startups from competition laws;

h) on the intergovernmental support for startups;

i) for the reporting and accountability by startups, under the Act, of the funds utilised by them;

j) for the de-registration of startups;

k) for the grounds and process on refusal to admit an entity into an incubation programme;

l) for th eadvertising and impact assessment of the measures of startups; and

m) for incentives to invest in innovative startups

It is unclear who shall be responsible for the making of the regulations between the Agency and the Cabinet Secretary since the Bill contradicts itself by mandating both the Agency and the CS to make regulations.

It is our view that the Agency owing to its expertise should draft the regulations in consultation with Cabinet Secretary.

Clause 31

Amendment of the Science, Technology, and Innovation Act, 2013

The Science, Technology and Innovation Act is amended—

a) in subsection (1) of section 29 by inserting the following new paragraph immediately after paragraph (p)— (pa) provide financial support to technological innovations registered under the Startups Act;

b) in section 32 by deleting subsection (4) and substituting therefor the following new subsection—

(4) The Fund shall be managed by a Board of Trustees which shall consist of eleven members to be appointed by the Cabinet Secretary as follows:

1. a chairperson, being a person with knowledge and experience in matters related to finance, investment and fundraising related to science, innovation and technology;

2. the Principal Secretary in the Ministry responsible for finance;

3. the Principal Secretary in the Ministry responsible for science and technology;

4. one person nominated by the Kenya Private Sector Alliance;

5. one person with knowledge and experience in finance and investment nominated by the Capital Markets Authority;

6. two persons with knowledge and experience in the fields of innovation, technology and entrepreneurship;

7. two persons representing startups in the country nominated by the most representative organisations representing startups;

8. the Director of the Kenya Innovation Agency, who shall be an ex officio member; and

9. the Secretary to the Commission, who shall be an ex-officio member.

10. by deleting the words "subsections (4)(a), (d), (e) and (f)" appearing immediately after the words "Trustees referred to under" in subsection (5) and substituting therefor the words "subsection (4) (a), (d), (e), (0 and (g)".

11. in subsection (2) of section 33 by inserting the following new paragraph immediately after paragraph (b)— (ba) financial support to technological innovations;

12. in subsection (1) of section 36 by inserting the following new paragraph immediately after paragraph (g)— (ga) provide financial support to technological innovations;

The proposed amendments seek to include innovative startups to benefit from the Fund created under the Science, Technology, and Innovation Act and to increase the member of the Board of the Fund.