How Should I do Business? The Basic Considerations I Should Know

Legal Vehicles For Doing Business Non-corporate: (a) sole proprietorship or sole trader (b) partnerships Corporate: (a) Not-for-Profit (b) For Profit

Sole Proprietorship Simplest form of business Single owner Owner is liable to an unlimited extent for the debts and liabilities of the business Cease to exist on death or bankruptcy of owner, or when owner decides to end the business May adopt a trading name under the Business Names Act The alter ego of the business

Partnerships Two forms of partnerships allowed in Barbados: general partnerships and limited partnerships A partnership is a relationship of two or more persons carrying on business with expectation of making a profit No particular formality required to create a partnership, no need for a formal agreement: the Partnership Act and common law principles will define relationship. But must register name of partnership. Partners are jointly and severally liable for all the debts, liabilities and obligations of business incurred as a result of the conduct of a partner acting within the scope of the business (section 11 Partnership Act)

Partnerships cont’d Partner not liable for act of another partner who acts without authority and the person with whom he acts knows that he lacks authority or does not know or believe him to be a partner (section 7 Partnership Act) Unless otherwise specified, the partners share equally in the profit and loss inter se Every partner may participate in the management of the business Decisions made by a majority of the partners Partnership dissolves on the death, bankruptcy or withdrawal of a partner, unless partners agree otherwise

Partnerships cont’d Limited partnership consists of a general partner or general partners with unlimited liability, and a limited partner or limited partners with limited liability to the extent of his or their capital contribution (Limited Partnership Act) Only the general partners in a limited partnership participate in the management of the partnership Partnerships are not a popular form of doing business because of the joint and several liability of partners; and also a partner may bind the partnership by dealings with outsiders, and these cannot be excluded by agreement

Not-For-Profit Corporation Can engage in business activities, and make a profit, but cannot distribute profit to members of the not-for-profit company. A means for doing charitable work

For Profit Company A company or corporation, is an artificial or fictitious person. It is intangible body, with a distinct or separate legal personality from its members (shareholders) Created by either an Act of Parliament or under legislation (in Barbados the Companies Act)

For Profit Company cont’d A company possesses all the powers of a legal person or individual e.g. sue and be sued, enter into contracts, hold property, borrow etc. Company has perpetual existence unless dissolved by members. Business in Barbados and elsewhere is carried on predominantly through the vehicle of corporations.

How Created? By filing at the Corporate Affairs Registry: (a) Name Search and Name Reservation (b) Notice of Directors (c) Notice of Registered Office (d) Articles of Incorporation, which detail the number of directors, the type of shares to be issued and the rights to be attached, any restrictions on transfer of shares, etc. Paying name search and reservation fee of $30.00 plus registration fee of $750.00 Registrar issues a certificate of incorporation which brings company into legal being

Benefits of a Company There are several practical advantages of doing business through a corporation The main advantage is the limited liability to shareholders, who are not liable for the debts and other obligations of the company, but may be liable where he or she receives a dividend where the company is insolvent, to the extent of the dividend received The shareholders only risk is his or her contribution to the capital of the company, and remains liable only for any unpaid portions of the subscription price for the shares

Benefits of a Company The second advantage is the separate legal personality: the shareholders are distinct from the company. The shareholders cannot bind the company, or deal with the assets owned by the company, or transact business on behalf of the company. A shareholder can sue and be sued by the company and can enter into contracts with the company.

Benefits of a Company The third advantage is the facilities a company provides for raising capital. This can be done by the issuance of various classes of shares with preferences to dividends, the floatation of bonds or debentures, shareholder loans. Fourth advantage: permits diversity of ownership and easy transferability of ownership.

Management of the Company The company is managed by its directors; directors may delegate management powers to committees or persons etc. Private company can have one director, public company must have a minimum of 3. Directors can enter into contracts with company, but must disclose interest. Director need not be a shareholder.

Distribution of Profits Profits of the company are subject to corporation taxes. Profits of the company are distributed to shareholders by way of a declared dividend, which is taxable. Shareholder who is engaged by the company may also be paid a salary, which is also taxable in the hand of the person. This would be a deductible expense of the company. Copyright 2015 Alrick Scott. All rights reserved.