(For purposes of this explanation a Business Name will be referred to both as Sole proprietorship & Partnership)
Business Name Registration in Kenya
The Proprietors are personally responsible for all the affairs of the business. The law does not make any distinction between the owner and his business.
- Since the law does not distinguish between the owner and his business, his liability is unlimited. For example If the business goes bankrupt, the owner will have to get money
from his own assets and financial reserves to pay to the creditors and lenders.
- The sole trader is also liable to pay for any legal compensation that might arise in the course of conducting the business. He cannot to defend himself by saying that the act was committed by his business and not by him.
- The sole trader has the final say as far as decision-making is concerned. He is not legally bound to listen to anyone.
- He keeps the entire profit earned by him and bears the entire burden of loss.
- A sole entity might come to an end if the owner becomes bankrupt or has an untimely demise, with no one to look after the business.
Limited company:
A limited company is a separate entity and is a separate person in the eyes of the law.
- Since a limited company is a separate person, it can hire ‘employees’ who are responsible for running of the company. These employees can be the directors of the company, the secretary as well as the staff including the receptionist!
- A limited company can be set up with a minimum of two shares holders and the limit of their liability is as per the value of shares they own,
- The laws of almost all the countries specify the use of the word ‘limited ‘ or ‘Ltd’ after the name of the company.
- The finance for starting a limited company is raised by issuance of shares. The people to whom the shares are issued are termed as shareholders. The shares cannot be issued to the general public unless it is a public limited company.
- The liability of the shareholders is limited to the amount paid by them during the purchase of the shares. For example If the company goes into debts, they are not liable to pay to the lenders and creditors from their own personal finance.
- The company is generally is held separately for any wrongdoing, the case will be filed against the company and not the directors. However, the directors are responsible for the way the company is run. If evidence of wrong- doings is found against the directors, cases can be field against them in the court of law.
- Decisions on the way the company is run is done in meeting by the board and bound by resolutions.
- The profits earned by the company can be distributed among shareholders as dividend. Alternatively, it can be also used for the expansion plans of the company.
- A company has a perpetual existence, which is not affected by the death of any shareholder or director.
Advantages/Disadvantages of Limited Company Over Business Name
- Organization: A Business name is a registration of a trade name for purposes of business whereas a Company of the incorporation of a separate legal entity to conduct business.
- Registration: A Business name is generally simpler to register and costs less and can have one person as a proprietor or two or more as partners, whereas a Limited company has a minimum of two shareholders, but can appoint directors and managers to operate the company.
- Liability: In Business name the proprietor is personally liable for act and omission of the registration. Companies are generally separate entities from the shareholders and hence separately liable. For the acts and omissions unless where the court goes behind the company veil.
- Control: In a partnership, the proprietor have full control of the affairs of the Business name, in a Company control is via board decisions or as per share holdings held by the shareholders
- Continuity: Theoretically at least, a partnership is less stable than a private company. Upon death or exit of a proprietor the Business name ceases to exist, whereas a company can live forever in perpetuity outliving its directors
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