If I am going to start a business, what form should it take?

You asked: If I am going to start a business, what form should it take? Here is our answer.

There are various forms of enterprises that are allowed under the laws of Zimbabwe

Sole Proprietor

Sole means one and only, single, solitary, individual or exclusive. A sole proprietor also known as a sole trader is a business that is fully owned by one person.  The owner is responsible for financing the business and carries the burden of the risk that comes with running the project. If the company suffers a loss it is the business owner who meets the costs of the loss including paying back debts. If the business is given a loan, the owner is responsible for paying back the loan. If the business hires employees, the sole proprietor is responsible for paying the employees’ salaries. However, if the business s is successful, a sole proprietor stands to benefit.  He or she gets all the profit. The sole proprietor also has a lot of flexibility in making decisions concerning the business.

Most entrepreneurs are sole proprietors, what we call the “Museyamwas.”Their businesses are not registererd as legal entities. When they pay tax, they pay as per the owner’s income and not necessarily as the business. Hence their income tax is calculated as PAYE (Pay as You Earn) based on the salary they pay to themselves.

Partnership

A partnership, unlike a sole proprietorship has more than one owner. These owners contribute towards the running costs of the business in agreed shares. These can be equal shares or some partners will have greater shares than others. The amount of responsibility or investment that a partner puts into the business is the exact amount of benefit that the partner will derive. So if a partner contributes 30% of the money, property, labour or skill invested into a business, they stand to get 30% of the profit that the business will make from its operations. If the company posts a loss, the partner will also get the 30% share loss and if the company closes, the partner is responsible for contributing 30% of what is needed to pay off debts.

In some cases, it may be necessary for a ‘Deed of Partnership’ to be drawn up. Whilst

this is not required by law it can be useful to resolve disputes or where, for example, the

profits of the business are not to be shared equally. You may also consider the option of

establishing your business as a limited partnership.

A partnership has the following advantages: work is shared; the business continues if

one partner dies or is unavailable; sleeping partners can help set up the business.

The disadvantages are that profits have to be shared between the partners;

disagreements may occur; and there is still unlimited liability.

Franchise

  1. c) Cooperatives

A cooperative is a business organization owned and operated by a group of individuals

for their mutual benefit. A defining point of a cooperative is that the members have a

close association with the enterprise as producers or consumers of its products or

services, or as its employees.

In Zimbabwe, cooperatives are governed by the Cooperative Societies Act (Chapter

24:05). Cooperatives must register with the Registrar of Cooperatives and must comply

with local bye-laws.

  1. d) Companies

There are four main types of company:

 Private company limited by shares – members’ liability is limited to the amount

unpaid on shares they hold.

 Private company limited by guarantee – members’ liability is limited to the

amount they have agreed to contribute to the company’s assets if it is wound up.

 Private unlimited company – there is no limit to the members’ liability.

 Public limited company (Ltd) – the company’s shares may be offered for sale to

the general public and members’ liability is limited to the amount unpaid on

shares held by them.

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Disclaimer
The Law Hub website provides legal information to give readers a general understanding of Zimbabwean Law. Its articles and social media posts do not provide legal advice and as such do not create a legal practitioner and client relationship. Examples given may not apply to all real life situations or cases. Readers are urged to consult a legal practitioner on any specific legal questions concerning a specific situation should they need legal advice.