LEGAL REQUIREMENTS OF A BUSINESS – TRAINING-2
How can I handle registration and taxation of my business?
Yes, we understand that the topic is very crucial in the well-being of your business and still we want you to have a better understanding of these concepts and ideas. That is why we again bring you the legal requirements two session where we had Mr. Bernard, a lawyer and consultant in the startup ecosystem, working with the Legal Box, as managing Partner to help us understand in the best way possible how to juggle the law and still make profits even in your initial stages of your business, in a more convenient way that will not reflect back in the future negatively to your business. This article is entirely based on the interaction we had with him on the topic aforementioned. Among the many questions he was faced with, is, what is a business? how do you successfully run a business in this era? You can always find the live recording of the meeting at the link provided……….
What is a business? According to Bernard many people confuse a business and accompany in terms of which, if the two comes first. Do I have to first have a company or a business prior to the other respectively? He says you must first be in business before you actually have a company or else you may end up never having a company. A business for that matter, is a venture where goods and services are produced, it has a continuous system or process of production with a profit motive.
What are the types of businesses provided for under the law? The law in itself is so broad and explains in depth what entails business transactions, contracts and agreements and what transactions are legally binding, what documents are credible for one to start running a business. So as a business owner one must always try to understand and interpret the law in order not to fall on the disadvantaged side of the law. Various types of business have various modes of operation which the law looks at differently.
The types of business include; the sole proprietorship, partnerships, limited companies, social; enterprises and Sacco’s, I shall try to explain a few details about each of these for your better understanding.
SOLE PROPRIETORSHIP; is a kind of business where the owner of the business has full control and power over the operations and management of the business. Because he is the everything of the business it’s cheap and easily managed. The business enjoys a freedom from the tax collector to choose how much taxes he pays depending on how much you earn and how well you file your returns. At registration, the business owner is asked to register the business name, his own name as well, this gives the company/ business ability to operate in its own name. The disadvantage with sole proprietorship is that the business does not get to own property, neither can you hold property
PARTNERSHIPS. Unlike sole proprietorship, in partnerships two or more people come together to establish and run business. Many partnerships happen because of money, skill, collaboration among others. It is cheap and easy to maintain. Partnerships can be to as many as 50 people in a single partnership. But anyway, they are not in position to hold and own property. Usually what they do is to hire or get a trustee in order to own property.
A limited and unlimited partner; a limited partner is one who is limited in his liability to the company. In terms of losses and profits and decision making. An unlimited partner is one who is unlimited even when it comes to loss or profit margin sharing. This means that; whereas a limited partner is not exposed to personal property being liable to recover business losses, an unlimited partner is exposed to having all his belongings including costs liable to be used in the recovery of company losses. This is because he is fully in management of the business.
LIMITED LIABILITY COMPANY. It’s one of the best investment vehicles. It allows one to 100 people to be members of the company. The assets of members of the company are separate from the company assets. This means that the company faces and enjoys its profits and losses. The company is a legal person in the sense that the law recognizes them as persons that are in position of suing or being sued in their own name. it has a fairly expensive registration procedure and it involves many compliance procedures, thus making it expensive to maintain. It can be dissolved any time the management feels its running out of business. This is easily through filing bankruptcy.
SOCIAL ENTERPRISES. Sometimes called a limited liability company or company limited by guarantee.” Example of such companies is the Jibu Water company. Many are created to help lower income earning people to sustain their lives and also help the community. They can include up to 100 people as members. It involves a fairly complex registration process. Which as well involves registration to become an NGO. The URSB process costs about 180000/=, with forms of about 5000/=, to 6000/= each.
The only challenge with social enterprises is that they fall in the middle and the social and the business community do not trust them to make profits. They may easily fall out when it comes to funding to scale.
SACCOs, Savings and Credit Cooperatives Societies. These are very common today and operate under the models as shall be explained to you below;
- Pull investment i.e. you get money and add it up in the same basket from which you are apportioned something equivalent to your input investment.
- Revolving funds i.e. people put money together and one by one a particular person is given that money for and after a month and it keeps revolving so much that each month there is someone who gets one whole some and it keeps revolving.
They are very quick tools for financing drives. They however are very risky as they involve people of all nature. There are high levels of fraud evidenced in day to day life.
After talking about all the various types and kinds of businesses and companies and their modes of operation. We want to now deal in successful operations. What do you need to know when it comes with operations?
Know your gatekeepers.
A gatekeeper is a person who authorizes your business operations, one who authorizes any action that your company or business is to partake in. Examples include, Uganda revenue authority (URA), Uganda registration service bureau (URSB), Uganda investment authority (UIA), national drug authority (NDA) among others.
The advantages of these are that if you know your gatekeepers and you are compliant to the way they regulate business operations then you are bound to having a successful business.
The question then is how do I conduct proper business?
In business it’s important to know that the best weapon in business operations is the use of paper work. Mr. Bernard holds it that companies do not shake hands every single transaction of a company should be documented because in the eyes of the law, or from a legal perspective documents are key evidence of transactions therefore you must know what constitutes a business document.
What constitutes a business document? This question can take you about another full lesson however to briefly list them out and talk about what is necessary. We have a list of business documents like the receipts, invoices, letter of intent, memorandum of understanding, contracts, resolutions. Avoid any business operations without an existing paper work to prove the existence of that understanding. Without documents, you forfeit your rights to enforce your economic rights.
The question asked is what next? After looking at all the aforementioned issues, your business structure tells you the best way you are to carry out your operations. So depending on the manner of business structures, different legal compliance and government rules will apply to you.
You need to strongly understand the type of business in which you belong, the authority that is right at your door and then oversight of the restrictive rules imposed on your company. This is because you do not want the government to get in your way, for it then shall be hard for you to do business.
My advice is that you consider structures that operate in a more friendly regulatory environment.
Finally, I want to make this clear. That risk is quantifiable; uncertainty you don’t know! Risk cannot make you a billionaire but uncertainty can make you a billionaire. Always remember entrepreneurship is about having the right people, process and standards perspective around you. This is guaranteed at TECHBUZZ HUB