Choose the right business structure – Limited Company or Sole proprietorship
Brief: Once you take the decision to start a business, you need to choose the right business structure.
I know many in Cameroon go for a limited liability company or a sole-proprietor business structure. Many go in without even knowing what they are going in for while others get confused on what to choose.
Whatever the case, I have fallen into many entrepreneurs in Cameroon who are unable to differentiate between a sole-proprietorship and a limited company. The truth is that they are unable to differentiate the two.
You’re not to blame
I don’t blame some of them because it is possible to have a sole-proprietor business in Cameroon with a name different from that of the owner. This is just an alias and reason why they ask you to to mention “ETS” before the name.
The “ETS” (etablissément in French or Enterprise in English) actually tells the public that this is a sole-proprietor business structure. This means that the business license for such a business is issued in the name of the owner.
On the other hand, limited liability company comes in two different forms – a private or public limited liability company. The difference between this and a sole-proprietor business structure is that the business license is issued in the name of the business.
There can be one or many shareholders or partners involved and none of them are personally liable to the debts of the business like the case of a sole-proprietor business where the owner’s liability is unlimited.
With a private limited company, you need to add the word Pvt, Ltd, Limited or SARL (in French) besides the name of the business. Meanwhile in the case of a public limited company, you have to add Plc or SA (in French).
Choose the right business structure
Limited Liability Company or Sole-proprietorship?
When you want to choose the type of business structure to set up, you need to understand the strengths and weaknesses of both depending on your needs. It is also good for you to understand the differences or similarities of both business structures.
Before you choose the right business structure amongst these two, take note of this important point. We are talking about a sole-proprietor business with 10 million and above turnover that uses a business license.
You know there are two types of sole-proprietorships in Cameroon. There is one that pays the discharge tax (global tax) and involves businesses that have a turnover of below ten million francs cfa.
What we are taking about needs to have a turnover of above 10,000,000fcfa. In this case, before you choose the right business structure, make sure you take great note of the below points:
1. Limited liability
This is one of the greatest advantage that a limited liability company has over a sole-proprietorship. What is the meaning of “limited liability”?
In the case of an LLC, limited liability means the owners or members of the company are protected from creditors. This means they’re not personally liable for the debts of the business or any lawsuits against the business.
On the other hand, the owner of the sole-proprietor business is responsible for the debts and liabilities of the business. This means their personal assets can be sold to settle the business’ debt. They’re also personally liable for legal suits against their business.
2. Separation of business from person
With a sole-proprietorship under 10 million fcfa turnover, there isn’t a clearcut difference between the owner and the business. The owner usually mingles their business funds with personal funds.
However, sole-proprietor business with a business license is actually required to report on how they use their business’ funds just like LLCs. They are obliged to keep their personal funds separate from their business.
In the case of a limited liability, you can get a liability loss if you intermingle your business funds with that of your personal funds. The company’s funds are required to be separate from personal funds of the owners.
3. Business name
The laws governing businesses in Cameroon requires that all limited liability companies include Pvt, LLC, SARL or Ltd at the end of their name. They have the right over their names and other businesses don’t have to use the name.
On the other hand, a sole-proprietor business can use a name with ETS, Enterprise, Etablissement added to it. The difference is that the names aren’t protected as any other person can register it as a limited liability company.
4. Cost of setting up
Starting a sole-proprietor business in Cameroon is easier and cheaper than a limited company. It doesn’t demand a lot in cost when compared to LLCs. You will have to register with the trade and personal property credit register.
You will have to pay a registration fee whereby a business registration certificate and a taxpayer card will be issued. You can then register with the tax office where your business is located at least ten days after you start activities.
It should be noted that sole-proprietor businesses in Cameroon are exempted from paying a business license for up to two years (in the case where you register at an authorized small business management center) and otherwise, one year.
In the case of limited liability companies, they’re obliged to register with a notarized article of association. Just like the sole-proprietor business, you also have to register with the trade and personal property credit register even though the fee is higher.
5. Regulation & taxes
Both LLCs and sole-proprietor businesses have same laws governing them when it comes to annual reporting depending on their turnovers. They pay same business license fees, they declare their taxes on a monthly basis and file in a statistics and tax returns at the end of the fiscal year.
Unlike the those under the flat tax rate (below ten million turnover) who are taxed quarterly and income treated under the personal income tax, the others are treated under company tax.
In Cameroon, you need to know the above 5 before you choose the right business structure. There are others which I may be updating as time goes on.
Meanwhile if you want to start an LLC or a sole-proprietor business quickly and affordable in Cameroon, don’t hesitate to get in touch with us below. We are also available for answers of a few questions that will get you started.
We can also help you file your paperwork to the right quarters or draw up your company’s articles of association.
Before you go elsewhere, make sure you check the full services we offer at OpenHub Digital:
- Business plan development: we help you to write concise business plan that will help you start a a profitable business in Cameroon.
- Business registration or incorporation services: register or incorporate your business – going commercial means you need to register your business. Check out why you have to register your business.
- Coaching & training: coach and train you on how to start, run and grow your business in Cameroon.
- Web design: expose your business to a greater audience or potential customers We do this by designing a content-rich responsive website as well marketing your brand using various digital marketing tools.
- Digital marketing: help build your reputation by providing you with high quality search engine optimized content and social media marketing services
If you really want to start, run and grow your business in Cameroon with ease, then get in touch with us now:
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This content has been prepared for information purposes only. It is not intended to provide, and should not be relied on for, tax, accounting or legal advice. You need to consult your own tax, accounting or legal advisors before engaging in any transaction.