DEAR Mirror Lawyer, My mother was a wealthy woman. She died last year and left my brother and I a considerable sum of money. We shared it equally as her Will provided.
I want to use mine to start a business. I want to go into trading. But I do not know where to start. Kindly advise me on the type of company I can set up as a businessman for trading.
Albright James, Sekondi.
Dear Albright, your decision to use your own money to start a business impresses me greatly. Under Ghanaian law, the type of company you should register depends on factors such as your business size, ownership structure, liability preferences, and growth goals.
The primary options under the Companies Act, 2019 (Act 992) and other relevant laws include the following.
a. Sole Proprietorship. One person owns this type of business. The owner and the business are not considered separate legal entities. As the owner, you will be responsible for all the business’s liabilities, including debts and losses. There are some good advantages. Some are that it is simple to set up and register.
The cost of starting it up is relatively low compared to other types of businesses. Because you own it, decision-making can be much quicker, and you can tailor your business strategy to current demands or needs.
It has some disadvantages. You will have limited ability to raise capital, and you risk having your personal property or assets used to pay debts or obligations that may arise in your business. Should you choose this type of business, you can register it at the Registrar General’s department.
b. The second type of business you can register is a company limited by shares. This type of business is best suited for businesses seeking limited liability and potential growth.
This business requires you to have shares and shareholders, although you can be a sole shareholder. It has more structure. The law requires this type of business to have at least two directors, a company secretary, an auditor, or at least one shareholder.
The company has a separate identity from the owner. In the event of liability, the company’s assets will be used rather than the owner's personal assets.
Registration of this company is also done at the Registrar General’s Department. It is more expensive to run than a sole proprietorship.
But it is more organised and offers greater protection to the owner than a sole proprietorship. It is easier to attract investors, and it can survive the owner's demise and continue to exist and be run, if it has a succession plan and the right people to run it. It has a higher regulatory requirement and requires formal governance structures.
c. The third type of business is a partnership. This type of business involves two or more people sharing ownership and responsibilities, as well as profits, losses and liabilities, in accordance with their partnership agreement. It is governed by the Partnership Act, 1962 (Act 152). Registration of such a business is also done at the Registrar General’s Department.
Some advantages are that there is shared financial responsibility and resources, and it is easier to raise capital, as compared to a sole proprietorship.
There is also a Company Limited by Guarantee. This is best suited for Non-profit or Charitable organisations. It does not have shareholders but rather members who guarantee a fixed amount for liabilities.
Profits made cannot be distributed to members. It is limited to non-profit objectives. I believe it is not the kind of business you are seeking to operate.
When choosing a business, my advice is to select one that protects your personal assets. You need to consider whether you want to run the business alone or with others.
If you intend to expand the business significantly, I believe a limited liability company may be better suited. You will also need to understand the requirements for annual tax returns, bookkeeping and governance.
For most small businesses, a sole proprietorship or private limited company (LTD) is a good starting point.
Consulting a legal or business professional can help you make an informed decision.
