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Turn your chama into a company

Over the last few weeks we have been analysing what went wrong with the investment group called SWEET (Sisters with Eternal Energy and Trust). They started well but ended up going through several experiences which now threaten their continuity as an investment group. We saw that they based a lot of their decisions on the element of friendship and trust instead of viewing their activities as strictly business which required professionalism as well as corporate governance structures.

One of the first things SWEET should have done is to set themselves up as a limited liability company. The advantage of doing this is that their liability as individuals to any debts of the company would be limited to their capital. The second advantage is that a company can sue or be sued in its own name. The third advantage is that the individuals can sell their shares to other individuals when they want to leave the company.

Now facing the wrath of Kenya Revenue Authority for tax evasion, each SWEET member was undergoing personal persecution as the properties had jointly been held in their individual names and they did not have the protection of a company to fend off the potential loss of their private properties in order to make good the amount owing to the tax man.

In the space of a few months, what had been a deep bond between friends who met regularly to discuss chama matters, rapidly dissolved into finger pointing, back biting and vicious wars of words and text messages. Makena, who was the Chairlady of the group, decided to call the other two original founders, Awino and June to see how they could rectify the volcanic situation.

To her surprise, Awino came to the meeting accompanied by an eager-faced young man who was evidently going to make a sale to them judging by the number of brochures and business cards he held in his hand. “Awino, why are you bringing third parties to this crisis meeting?” hissed Makena, visibly irritated that her friend was not taking cognisance of the situation at hand.

“Makena, where are your manners? You clearly forgot what we discussed last week. This is Abu, he may have a solution for our problems,” retorted an equally irritated Awino.

“Ladies, please let’s not air our dirty issues in public,” interjected June. “At this point, I am willing to listen to the Pope if he will provide even eternal salvation from this mess we are in.”

Fifteen minutes later, the three ladies were deeply engrossed in Abu’s calm analysis of their situation. He made it clear that all was not lost as their CDSC account at the stockbrokers was still intact despite being put under statutory management. All that the ladies would require is to fill out the statutory forms to move the account to a credible stockbroker and then begin the process of liquidating the shares so as to pay KRA.

Furthermore, Abu advised, they could sit with the KRA auditors and provide a payment plan that demonstrated where and how they would repay the amounts owed to the taxman. “But what about the three members of our group who have flatly refused to be involved in any more chama issues, shouldn’t they be forced to sit with all of us and talk to the KRA guys?” asked June.

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“Not really, if you can at least sort out the movement of the CDSC account to a good stockbroker as you three are the signatories, then you can make the decisions to sell the shares and clear your names with the taxman,” was Abu’s response. Abu went on to detail how this event should help them set up the proper structures going forward for a legally incorporated company with members taking up shares in the company.

“The Swahili have a saying “kuteleza si kuanguka” and you ladies should turn this crisis into the opportunity to set up an organisation that is streamlined and focused to generate future returns for its members using the collective investment energy of the group,” Abu continued. His advice made a lot of sense to the three ladies and they immediately began to visualise how they could set up a company and invite different people outside their social circles to join, each person chosen on their professional strengths.

By the end of the meeting with Abu, the founder ladies were united in their resolve. They would rise up from the smouldering ashes and reorganise themselves. Next week we will see what steps they took to dust off the ashes from their wings and start to fly.

(Origins Investment Group Advisors

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