Choosing between a Business Name, Limited Liability Partnership and Company formation in Kenya
Choosing between a Business Name, Limited Liability Partnership and Company formation in Kenya – Kenya is one of the fastest growing economies in Africa, with an annual average growth of 5.9% between 2010 to 2018 with a GDP of $ 95 billion. Kenya recently reached lower middle-income status and has successfully established diverse and dynamic economy. It also serves as the point of entry to the larger 300 million East Africa market. It is a fast-growing economical hub and it’s not just to Foreign Investors but also the local entrepreneurs are taking advantage of the vast opportunities in Kenya while contributing to economic growth of the country.
If you are a budding entrepreneur, you are on the right track. Before proceeding to venture into any business, however, it is important to know the basics of different company formation in Kenya that will best suit your business, not just in the short term, but long term as well.
Business Name
A business name simply means a name which a business trades under for commercial purposes. In registrations, the business name is the category where sole proprietorship and basic partnerships fall into. It is suitable for not just single-owned businesses and partnerships, but also for businesses that are not already looking forward to raising capital through the issuance of shares.
The reasons why you may prefer to register your small business are:
- They are easy to register.
- They require only one person to start.
- You can upgrade to a limited company when need be.
- Registration fees are affordable.
- A business name requires less formalities
- Profit from the business is solely owned by the owner
- Tax liability in business name is minimal.
Limited Company
Limited companies are companies which have been incorporated at the registrar of companies as a separate legal entity from the owner. The principal reasons for trading as a limited company are:
– LIMITED LIABILITY
This means the company can enter into contracts and be sued, in its own right. In the event that the company is sued, its directors and shareholders do not have to sell their own assets to pay the debt, unless, in the case of directors, they have been found guilty of wrongdoing. This legal separation means that directors and shareholders cannot take money out of the company whenever they want. Money earned from sales belongs to the company, not to the individuals.
– PROFESSIONAL STATUS
Another major benefit of forming a limited company is the professional status that you get from the company formation in Kenya. Many customers and some businesses would much rather deal with a company that is incorporated because they have gone through the process of registering and simply seem to be much more stable than a company that is not incorporated.
PERPETUAL SUCCESSION
After Company Formation in Kenya, the Company is valid and eligible for succession even after the directors pass away. Unless the company is dissolved it will always be in existence, as opposed to sole proprietorship which might come to an end soon after the sole proprietor dies or becomes bankrupt.
EASE OF STAFFING
A company as a legal entity can hire staff. with its own KRA PIN and bank account. There will be ease of staffing and even paying out salaries without these being in the director’s personal account
TRUST
Not only does having your company incorporated make customers feel that you are more trustworthy, it can also help you when you need to finance that business or raise capital for business growth. Most lenders prefer for companies to be incorporated in order to lend them money.
LIMITED LIABILITY PARTNERSHIP (LLP)
A limited liability partnership [LLP} is a partnership in which some or all partners depending on jurisdiction have limited liabilities. It exhibits elements of partnership and limited companies. LLPs are useful for companies that usually operate as a partnership, such as accountancy firms or lawyers. The advantages of LLP are:
As Many Owners as Needed
One of the greatest things of a limited liability partnership is that there is no limit on the number of owners that can be involved with the business. This is great because it evenly spreads out the amount of liability each partner has.
– Less Liability
Just as the name suggests, limited liability partnerships limit your liability. Since there are multiple owners involved in the business all of the risks of the business are spread out and made much smaller than if a single person was responsible for the business on their own. This generally refers to legal issues, like if the company was sued for any reason.
– Great Flexibility.
LLPs are more flexible when it comes to adding or removing people in the business whereas the structure of a limited company is more rigid. LLPs have no limit for partners and may have partners varying from two to many.
In conclusion, the right type of structure for your business depends on a variety of factors and the interests of different investors. These factors are likely to include but not limited to: taxation, market sector, management and ownership structure.
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