Enterprise
Sole proprietorship, partnership or company...which way?
Wednesday August 03 2022QUESTION: My name is Anne, I recently attended a start-up seminar hosted by a university. One speaker advised us to register the right type of business association but did not elaborate much. What are the different types?
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When it comes to business associations, there are three categories available. Each has different features and is governed by a separate law.
The first type is a sole proprietorship. As the name suggests it is owned by one person. Its registration is simple, cheap and fast. It is done under the Business Name Act through the e-citizen platform. Once the application is finalised you will be issued with a certificate in the name of the business.
While it is the cheapest and simplest form of business association, it has several disadvantages. The first is that a sole proprietorship and the owner are considered as one person. This lack of distinction means you could end up being personally liable for your business liabilities.
This is unlike a company where the owner is protected from personal liability. Secondly, sole proprietorships are harder for equity investors. Equity investors are those who want a stake in your business. It is best for simple businesses.
The second type of association is a partnership which is a business owned by two or more people with the aim of sharing revenue. Registration of a partnership is a fairly simple through the e-citizen portal. A certificate is issued in the name of the partnership.
Their relationship is governed by a partnership deed, which states the manner in which the co-owners will run and manage the business, their rights and responsibilities, capital contributions, revenue sharing, financial issues, dispute resolution among other clauses.
The main advantage of a partnership is the aspect of shared risk, division of duties and raising more capital. It shares a similar disadvantage with a sole proprietorship in that the owners are personally liable for business liabilities. It is best for simple co-owned businesses.
The last type is a company. The law allows companies to be single or multiple-owned. This means that you can form a company even as one person. Private companies are limited to 50 members while anything above this becomes a public company.
They are more complex to register and manage as a number of filings like annual returns have to be done yearly. Registration is done through e-citizen. It is also more expensive to register a company and a lot harder to wind up.
There are however many advantages of having a company the biggest being that the owners and the business are separate. This means that the owners are not personally liable for debt or lawsuits. A company is however not suitable for short-term ventures.
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