Which will you choose – sole proprietorship or limited company?

Brief: Will you go for a sole proprietorship or limited liability company? Gladys has been worried so I needed to answer her question. Someone out there may have been asking this same question.

Gladys asked:

Why do business owners in Cameroon prefer sole proprietorship to limited liability companies?”

This question is very necessary when you plan to legalize your business. However, to make it clearer, I will rather put it this way – why do we have more sole proprietor businesses in Cameroon than limited liability companies?

Or which should I choose when registering my business – a sole proprietorship or limited liability company? The answers will always be similar and worth asking especially when you plan to register your business.

I know why Gladys asked this question. If you have been following my write-ups, you will notice that I have been encouraging my audience on incorporating their businesses and not registering as a “one-man business” as it was called.

I use “was” above because it is also possible nowadays to have limited liability company with a single shareholder. It is called a single-shareholder (sole shareholder as per OHADA) company.

Note that the right name is a single-shareholder or sole shareholder company. Many tax officials translate this to unipersonal company (direct translation from French – société unipersonnelle) which is wrong.

Many go for sole proprietorship because of ignorance

To answer her question, I will say many Cameroonians don’t prefer sole proprietor businesses. Rather, many are not aware of the various options and their differences. Many don’t know the difference between a sole proprietorship and a limited company.

This is one of the reasons I put this platform in place – to educate people. It is not rare to find a business owner who doesn’t know the legal type of his/her business structure. So long as they pay their taxes, many call their businesses a company.

Last week, I asked a business partner to tell me her business’ legal status and she said it’s a company. I wanted to put her business in our “We Endorse” section which is a free (as of now) business profiling and recommendation section on our platform.

You can also take this advantage and send your business to gain this exposure. It’s free of charge. You may not know what it will do to you now, but in future, many will be visiting to get partners or look for registered businesses.

However, when I asked her what she had in her business registration certificate or business license – the name of her business, Wise Concepts or her name. She got confused, checked and told me it was her name.

That was when she knew her business was a sole proprietor business and not a limited company. The name Wise Concepts is allowed and used as an alias. However, legally, she doesn’t own the name so someone else can use it also.

If you understand the last paragraph, you will see that it is one of the disadvantages of a sole proprietor business. With a limited liability company, incorporating it is the first step of claiming ownership of the name.

I wrote 6 reasons you should have your business registered to clarify this. We recommend Wise Concepts for all your Digital & Offset Printing services in Cameroon. They are the best and we have been partners with them since 2010.

The fact that they want to be sole owners of their business

Some people don’t want to go into partnership with others. They will prefer to be the sole owner of their business. In this case, they will prefer to register a sole proprietor business.

However, this is a misconception. In Cameroon, Article 309 of the OHADA Uniform Act on Commercial Companies and Economic Interest Groups, of which Cameroon is a signatory:

The private limited company is a company in which members are liable for the company debts only proportionally to their contributions and whose rights are represented by equity interests.

It may be formed by a natural person or legal entity, or by two or more natural persons or legal entities.”

So in essence, the “it maybe formed by a natural person” answers that ignorance whereby people thought a company must be made up of many shareholders. Many of our clients are shocked each time we tell them they can be a sole shareholder.

Cheaper to register than LLC

Another reason that people go for sole proprietor business structure is the fact that it is cheap. I wonder how cheap it is when compared to the disadvantages that goes with the cheapness.

Apart from the articles of association and other documents that needs the attention of a notary public, the difference in the cost of registering a company and sole proprietor business is minimal.

The government of Cameroon has simplified things by reducing the authorized capital from one million francs to 100,000 thousand francs. Let’s see what OHADA has to say about this in Article 311 of the Uniform Act on Commercial Companies and Economic Interest Groups:

Unless otherwise provided for by a national legislation, the amount of stated capital shall be one million (1,000,000) CFA Francs at least. It shall be divided into equal equity interests whose nominal value is not less than five thousand (5,000) CFA Francs.”

So the first part of the article, unless otherwise provided for by a national legislation, shows that you can actually start a company with an authorized capital of 100,000 francs as enforced by the legislator in Cameroon.

I will be sharing with the difference between authorized and paid up capital. I will also explain to you why you should be careful when choosing your authorized capital. Many people are excited going in for the minimum without knowing the benefits of going in for more.

Easier to create

Others will say it is easy to register. That may be true, but I will tell you it may not be that different. The difficulty may be in the documentation demanded. A sole proprietor under the flat rate tax system will need just an ID card and location plan.

Every business in the flat rate tax regime is a sole proprietor business. In the case of a sole proprietor in the simplified and actual earnings tax system, the difference in documentation is that you don’t need an article of association as in LLC.

However, the time taken at the level of the registrar of companies may be the same. OpenHub Digital has done its best to simplify this process whereby you can register your business and obtain a business license in Cameroon within 14 working days.

This means, we can ease the process of incorporating your business if you think one of the reasons people go for a sole proprietor business is because it is easy to register. Our network is increasing on a daily basis.

There are many other reasons why many go for sole proprietor businesses. However, when you compare it to LLCs, you understand that most don’t know the difference or are ignorant about what the law says.

After reading this, which one will you choose – a sole proprietorship or limited liability company? It maybe difficult to answer because you don’t know the advantages or disadvantages of each or may not even know their differences.

If you want to register or incorporate your business in Douala, Limbe, Buea, Bafoussam, Yaounde, Bamenda, Edea and many other towns in Cameroon, get in touch with us. If you already have a registered sole proprietor business and want to change to a company, then we can help you.

I will be sharing with you in future why you should turn your sole proprietorship into a limited liability company. You should make sure to always choose the right business structure before engaging.

OpenHub Digital is a one-stop shop to doing business in Cameroon. We help start, run and grow businesses in Cameroon. You can check the various services we offer. If you have a registered business, you can get free exposure on our “We Endorse” page.

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