WE continue this career guidance series aimed at young people and school leavers. We continue discussing basic aspects of commercial and company law for those in business or thinking of going into business.
Your Rights: MIRIAM TOSE MAJOME
It is important to be familiar with basic concepts and comply with the legal requirements associated with business and commerce. Last week I received many enquiries about where to get information. I advise reading basic business textbooks and legislation. The internet is a also an excellent resource.
The law
Companies and other commercial enterprises are regulated by the Companies Act Chapter 24:03. The Act provides the legal framework to consolidate and amend the laws relating to the constitution, corporation, registration, management, administration and winding up of companies and related associations. The Companies Act does not apply to building societies, co-operative societies, private business corporations, trade unions and social clubs. Not every business venture has to be registered as a company. However there are distinct advantages of forming and registering a company and trading formally. People are free to go into any business set up that suits their needs so it is recommended to have some working knowledge of as many forms of companies as possible to see what may be suitable. A company is an association of people, who want to go into business together and can own and trade shares in the business.
Private limited company
This is the most popular form of company but is no means the only one. It is what most people relate to and are familiar with. We already discussed the concept of limited liability on shareholders and directors. It can have up to a maximum of 50 directors and shareholders, who buy shares into the company. Each shareholder owns a certain portion of the company in relation to the number of shares they own.
Shareholders do not need to be directors in the company or even work in the company. Other companies can also buy shares in the company and be shareholders. A company is constituted on the basis of its certificate, memorandum and articles of association and other documents prescribed by the Act. It is a requirement to file annual returns with the Registrar of Companies even if the company is not active. Penalties are applicable if this is not adhered to. The memorandum prescribes how meetings of shareholders are held and the appointment and retirement of directors and other relevant business.
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Co-operative societies
This company model gained popularity in the 1980’s when the new government flirted with populist socialist policies borrowed from the Soviet Union and the East European bloc. A ministry was established exclusively for co-operative societies. Society members get together with the intention of pooling resources to facilitate a service such as the production or marketing of agricultural produce or livestock or other ventures. They sell the products amongst themselves and to other markets and share the proceeds and profits. Co-operative societies are governed by the Co-operative Societies Act Chapter companies chapter 24:05, which is overseen by the Ministry of Small to Medium Scale Enterprises. It is a worthwhile company model for young people from marginalised areas, who have limited capital, but may have access to resources like land or equipment. Some favoured youth groups benefit from certain government programmes even though access to such programmes is not so transparent. Even so there are some examples of relatively successful schemes in some parts of the country such as irrigation schemes run by registered co-operative societies. Co-operative societies must be registered with the Registrar of Co-operatives
Private business corporation
This is another less common but viable option for start-ups. PBC’s are established in terms of the Private Business Corporation Act Chapter 24:11. A maximum of 20 members is allowed who all have to be natural persons. Another company cannot be a shareholder. It is constituted by an incorporation statement and not by a memorandum and articles of association. It is considered as having fewer statutory demands such as exemption from filing annual returns with the Registrar of Companies. It is relatively easier and cheaper to establish than registering a private limited company or buying a shelf company. Lawyers and registration agents can assist in registering PBC’s. PBC members also have limited liability like in a private limited company. A Private Business Corporation can later be changed into a private limited company. It is not a requirement to appoint directors as members may take part in the management of the business. Members do not have to buy shares but may own an interest, which is quantifiable as a percentage in the business. It a very flexible company model and is ideal for young people starting a business.
Personal liability options
It is not a requirement to register a company in order to start a business. Companies may be incorporated in terms of a common law universitus and not be registered under any statutory provisions. An unregistered company is formed by drawing up a constitution setting out it will operate. It is very easy to set up but has many drawbacks and pitfalls associated with backyard businesses. People can also be in business as Sole Traders or as a partnership. A partnership can consist of more than two people who may choose to draw up a Deed of Partnership. A major disadvantage of an unregistered business, a sole trader ship or a partnership is the aspect of unlimited liability. Members of such companies are personally liable for debts accrued by their businesses.
Miriam Tose Majome is a lawyer and a teacher. She can be contacted on [email protected]
