A business is any activity you carry out to generate profit, social good or to promote societal well-being. The structures involved in the process are what classify it as a business. NGOs are businesses because of these structures.
Legal structures, however, are the law that establishes your business. The focus was on the legal business structures of Ghana, knowing one’s options to help them make informed decisions.
There are four legal business structures in Ghana. Namely, Sole Proprietorship, Partnership, and Incorporated Companies (Limited by Shares, Guarantee and Unlimited) and External Companies.
Sole Proprietorship also known as “One Man Business” is mostly and widely used in Ghana due to the cost involved in registering. It is the least expensive to operate. There are fewer formalities or bureaucracies, and it’s easier to make decisions. In Ghana, it is registered under the Business Name Act 1916 (Registering a name). The drawbacks to this type of structure are all liabilities fall on the owner, there are sometimes rushed decisions, raising funds is difficult because of trust, there is no succession, and legally the business dies with the owner.
This is when two or more people come together to form a business for profit making. In Ghana, the highest number of partners is 20. They are usually people within the same profession, of the same expertise or field. Everyone is equal unless there’s a general partner who sought of manages the business and the rest then become limited partners. Some advantages are the best decisions are taken, resources are contributed by everyone, and it is also easier to get funds. However, there is equally no succession, there is a likelihood of dissolution when there are issues.
This consists of Limited by Shares, Guarantee and Unlimited. The Companies Act of 2019 ACT 992 distinguishes the various types of companies. Here the company is seen as a legal entity and separate from the owners.
Limited by Shares
Shares give one part ownership of a business. Limited by Shares ensures that in time of liquidation, liability equals the value of unpaid shares. This means in any case where there is the need to dissolve a company, shareholders are to pay only the amount value of unpaid shares. In limited by shares ownership is separate from control. Companies exist to maximize shareholders’ value. Directors are appointed to protect the interest of shareholders, and also serve as watchdogs for managers. Registering it requires at least two directors. Shareholders earn from dividends (capital gain).
Limited by Guarantee
Limited by Guarantee, where the business does not exist to make any profit. It is mostly directed towards a social cause. With the new amendments, one can make some profit but it should be used for the business. Requires also at least two directors, at least one subscriber guarantee, an amount that in any case of liquidation one would be willing to pay.
Unlimited registration is usually for certain professions, such as accountants, auditors, lawyers etc.
External Companies registration (Branch Office Company), where the company is operating as a branch company outside its county. A company that is outside Ghana but has a presence here. It is easy to register, there is less bureaucracy. There is the need to have a local manager, or a manager who is a resident of Ghana. Decisions taken outside the country affect the branch office.
On the 11th of November, Firstcode Management Services had some of its staff train staffs of Enterprise Bureau on “Choosing The Right Legal Structure For Your Business: Know Your Options”. This was very educative training.