When an individual decides to set up a business, he/she must decide on the most appropriate structure through which the business will be conducted. A careful choice is essential as it can contribute to the overall success or failure of the business venture. There are a variety of business structures which may be appropriate in particular circumstances and a number of issues to be considered.
The choice of business structures may include; Sole Proprietorship, Partnership, Private Company and Public Company. The easiest kind of business set-up is that of a sole proprietor (Business Name) but of recent, the Ugandan law has come to appreciate the concept of a Single Member Limited Liability Company (SMLLC) and has provided for this set-up in the Companies Act 2012.
“Majority of businesses in the informal sector are sole proprietorships which presents an opportunity for sole business owners to take advantage of the potential benefits that the single member limited liability company set-up presents. In comparison, there is technically not much difference between a Limited Liability Company (LLC) and a SMLLC. A SMLLC takes on all the advantages of a corporate body, in addition to being separate from its owner, legal and is eligible to transact and trade in its own name. SMLLCs can buy, own and transfer property easily,” elaborated Edward Muwanga, Deloitte senior manager Advisory.
Muwanga went on to state that an SMLLC can borrow money and provide security in form on its assets and can sue/be sued in their own name and has better access to financial services such as debt financing. “More so, it can easily participate in bidding processes for the provision of goods, services and works and can easily access both local international markets with enhanced visibility through advertising and marketing.”
Nonetheless, the sole proprietary business set-up still holds advantages although it is no longer that viable. Muwanga cautioned that sole proprietary businesses take on the simplest formation and does not require services of an advocate for document preparation. “There is no requirement to file separate tax returns for sole proprietor businesses. If one’s business grows one can easily change one’s business structure to a more complex model and possesses an easier exit route in the event one decides to cease operations.”
Lastly, these two types of business structures have additional similarities that tend to confuse business persons. “There is full ownership and the owner is privy to full management control. One may not necessarily hold formal meetings required of shareholders/members as is the case with other business structures and the owner enjoys\suffers, solely, all profits\losses. In summary, the SMLLC achieves superiority over sole proprietorship in allowing for the owner/manager to maintain legal separation between business and personal liability,” Muwanga remarked.