What is a Registered Business?

Brief: Many entrepreneurs and would-be entrepreneurs out there don’t have or do not plan to register their businesses. I don’t know their reason but they are making a very BIG Mistake. It is time for you to know why you need to register your business. But before, it is necessary for you to know what a registered business is.

Under normal circumstances, before you begin a new business, you have to legally register it with the state or local government and be issued a license to carry out activities. A registered business is therefore one which has passed through the above procedure.

In a couple of days, I will be posting an article on 6 reasons why you need to register your business now! I have made mentioned of the that fact you will need to know the types of business that are available for you to register, reason I am writing this other article what is a registered business as a prelude to that?

What Types of Business Registrations are Available?

There are many different types of businesses that you can register but may differ depending on the country in which you find yourself. Not to go to all the details, I am going to share with you four major types – Sole-proprietorship, Partnership, Private Limited Liability Company and Public Limited Liability Company.

However, you should make sure you find out from the government agency in charge of registering businesses in your country to know more about other business types apart fro these four.

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I will also want to let you know this concept of limited liability which we will be seeing in the three business types I mentioned above. It is necessary for us to understand this concept before because it will help us to understand better the different types business structures mentioned above.

Don’t forget that my reason of bringing this topic up is because I want you to know the reasons why you need to register your business now! Be warned! It is a long post but very necessary for you to read all.

What is Limited Liability?

Let’s imagine you borrowed money from a friend or bank to start a business. On a sad note, your business did not succeed as you planned. The bad thing is that your supposed friend or bank is on your neck to pay back they money you borrowed.

Since you did not have a registered business, the loan was issued in your name. This means you are personally responsible [liable] to pay back the loan. If your friend or the bank takes you to court, you will have to pay them back.

This means the bank or your friend can use its right to take over any property or assets of yours to recover the money you are owing them. In this case, your entire assets (personal and business) could be taken over to repay your loan.

This is an example of what we mean by unlimited liabilitynone of your assets will be spared until every dime you owed has been recovered.

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On the other hand, a limited liability will mean the amount owed is limited just to the amount and assets of the company. This means your personal assets are safe from any claims.

If you had a registered business under the notion of limited liability, in the case of recovery, only the assets of the business can be touched. Under normal circumstances, the bank has no right to touch the personal assets of the owner(s) if the business has a limited liability.

I am sure you have understood what limited liability is all about. Don’t forget that not all legally registered businesses enjoy limited liability. Let’s get to know the different business types below:

1. Sole proprietorship

A sole proprietorship is a business type owned by an individual. In such a business structure, you cannot legally distinct between the owner and the business. This means two things:

1. All the profits made from carrying out business activities is entitled to the owner alone and

2. Since the owner enjoys everything alone, he or she is also responsible for any losses, debts and liabilities incurred by the business.

Now we see that in the case of a sole proprietorship, the liabilities of the business is not limited to the assets of the businesses but touches the personal belongings of the business owner.

Sole proprietorship is one of the most common and simplest type of business to set up. Just as the business cannot be separated from it’s owner, it has to operate in the name of the proprietor. Such businesses usually end after the death of the owner.

It is also possible to register sole proprietorship under a fictitious name even though such a fictitious name is simple a trade name that doesn’t make it an independent entity from the owner.

In Cameroon, many people confuse what is commonly called “Etablissement [abbreviated as ETS]” as a company. Even though such a business type is issued a business license, it doesn’t mean it is a company. The business license is issued in the name of the proprietor which makes it not to be separate from its owner.

You can see How to Create a Sole-proprietor Business in Cameroon for more information.

Examples of sole proprietorship businesses include photography, bookkeeping, carpentry, plumbers and other artisan businesses where the owners work alone.

2. Partnerships

A partnership is a business structure owned and operated by two or more individuals. This form of business come in two types:

  1. General partnerships – where the managers (owners) of the business are responsible for the debts, losses and liabilities of the business. In this case, all the owners of the business have unlimited liability to the business’ debts and other obligations.

  2. Limited partnerships – where we have both general and limited partners. In this case, the general partners as above own, operate and assume the liabilities of the partnership. On the other hand, limited partners are just investors whose liability is limited to what they have invested in the business. This means limited partners have limited liabilities and have no control over the business.

This type of business structure is common among liberal professions like accountants, lawyers, business consultants, etc.

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3. Private limited liability company (Ltd. or Inc.)

This is the type of business structure I will encourage most entrepreneurs to go into if you want a registered business. This doesn’t mean I am discouraging you from starting other business types. You will understand why I am saying so when you finish reading about it.

A limited liability company which is also known as an LLC and usually abbreviated after the business name as Ltd or Limited is a business structure which has the characteristics of both a partnership and sole proprietorship.

Why is it called a limited liability company? Just as we explained the concept of limited liability above, it is a company structure where the liabilities of the owners are limited to what they have invested in the company.

According to law, such business structures are regarded as legal human beings. This means it can borrow in its name, own property, sue or be sued as well as invest or loan money in its name.

Another good thing about such a business structure is that it can be transferred or sold to another person if the shareholders are willing to do so. This is because it exists on its own.

It may be difficult or more expensive to start when compared to other structures like partnerships and sole proprietorships, but it is worth the expense for those who want to venture into it.

In Cameroon, an individual, both alien and national, can 100% shares of a private limited company. Read this previous article on how to create a private limited liability company in Cameroon.

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4. Public limited company (PLC)

This is also a type of limited liability company with the difference that the shares can be sold in public. Legally abbreviated as PLC, public limited company can be listed or unlisted in the stock market. Listed means shares of the company are traded on the stock exchange whereby anyone can buy or sell shares.

Compared with private limited liability companies, the cost of setting up PLCs is very high. There are very strict rules and regulations put in place by governments before such business structures are registered.

Examples of such businesses are large companies and multinationals. In Cameroon, such companies are treated under the Directorate General of Large Enterprises. Most of them start up as private limited liability companies before they are transformed into public limited companies.

Now that you know and understand what a registered business is, it is time for you to go ahead and see the 6 reasons why you need to register your business now! [Coming up in a couple of days]

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