Every serious entrepreneur will at some point busy him/herself in figuring out which route to take in registering their business(es). Formalising your business will bring in more benefits to your operations than you may imagine. With regards to the benefits of being a formalised entity, you might want to recall that recently only formal businesses had an opportunity to access the ‘Covid-19 Funds’ unveiled by the government. Now, debates have since been standing as to which is the best entity to take for your business and options have it that it can either be a Private Limited Corporation (Pvt Ltd) or a Private Business Corporation(PBC).
Since this is the case, what you want to do next is figuring out the best option for your business operations with regards to making it an official entity bound by the laws of Zimbabwe. As with everything, each possible option has its own merits and demerits which might make one preferable over the other. In this article, I attempt to give a brief rundown of each of the two and I hope that this will assist you in deciding what works best for you.
A private limited company (Pvt Ltd)
A private limited company (Pvt Ltd) may well be defined as a privately held business entity under the control of private stakeholders. What is critical is the liability associated with this entity where the liability of the business only extends to shareholders in as far as their share ownership. In this regard, it can well be argued that such a company gives greater securities to shareholders who will have limited liabilities concerning the company`s operations. Such a company is, therefore, well suited for entrepreneurs who intend to expand their business operation on a massive scale. Some quick facts to note with a Pvt ltd company is that upon registration you will receive the following documentations:
1. A Certificate of Incorporation
This is a legal document /license relating to the certified formation of a company as issued by the Registrar of Companies. Because of the scope of the definition of a company as Pvt Ltd, specific details must be contained as elaborately as possible. Therefore, this certificate contains important details relating to the date of incorporation and its registration number. This document stands to prove that a company is legally incorporated as a Pvt Ltd and is thus bound by the Pvt Ltd Act as provided for by the law of Zimbabwe. On this document, the registrar will thus put his seal in the stamp which thus stands as verifiable entrants to the document proving the legal status of the corporation.
CR6 and CR14 Documents
These documents accompany the certificate of incorporation and the Cr6 document shows your registered business`s physical and postal addresses. Perhaps emerging as important from this document is the need to show the locations of the officially recognised operations. Most businesses upon commencement usually use the owner’s address and as owners intend to grow the business your home address might not give your company/business the credibility it might deserve. Also, because of this document, you might even consider moving your business to a more professionally recognised and designated working area which will be an advantage if you are a growing startup.
On the other hand, upon registration, you will also get a CR14 document which captures all the necessary details concerning a company`s directorship and secretaries. This on its own should suggest the intensity of the registration process if you so opt to register your entity as a Pvt Ltd.
2. A Private Business Corporation
Having considered the outputs when you register as a Pvt ltd, there is a sense in which a Pbc can well be regarded as a simplified version of the former. It has been stated by the respective authorities that this company type was arrived at following the realisation that some small businesses might not have the necessary pre-requisites to register their operations as Pvt Ltd. While this could have been the case, there was a clear realisation that the informal sector was constantly expanding a trend which required a move to formalise such mushrooming informal sector. Therefore, the PBC was by design meant to accommodate SMEs desiring to formalise their operations. Perhaps one of the single and most critical factors is that a single person can register his/her business being a sole trader. This is rather different when compared to the Pvt Ltd where before registrations it is a pre-requisite that 2 or more persons be listed as directors.
Upon registration, the simplicity of a PBC is also seen in its statement of incorporation which only highlights the name of the business as well as its owner(s). The statement of incorporation also shows the objectives of the business for which it was registered. This rarely surpasses 10 objectives seeing to it that a PBC is mainly meant for SMEs which rarely have an extensively diversified portfolio.
PBC and Share Holders
Accompanying a company`s growth is an intensive need for investments which on its own might point at the issue of shareholders and investors. If you are an entrepreneur looking forward to investors pouring their funds into your expansion drive, it may well be important to know that a PBC only allows for individuals to be shareholders. This is strikingly different from Pvt Ltd where shareholders can either be individuals or established business entities or organisations. This on its own might thus act as a major demerit towards taking the Pbc route in formalising a business. Some would want to look at this as a weakness in as far the chances and scoop of possibilities in capitalising a business growth drive.
However, just like a Pvt ltd legal entity, a Pbc also exists as a registered, operational and officially recognised legal entity which has few legal requirements to register. Adding to its simplicity is also the fact that this Pbc entity does not require to have financial statements which usually have to undergo audit processes to ascertain the financial position of a business. Auditing provides information as to how a business has managed its finances and results are accordingly shared with shareholders and investments.
Directorship of a company
The nature of a Pbc is such that once registered its existence is regarded as perpetual where the transfer of ownership is fairly easy. However, while this might be attractive to startup entrepreneurs the number of directors is only limited to 20 persons. On the other hand, a Pvt Ltd company can accommodate as much as 50 Directors which can broaden the scope of ideas contributing to the growth and development of a business.
It is also worth noting that there is more that goes into defining a Pvt ltd and PBC as well as the advantages and disadvantages of each. One is thus encouraged to have a thorough appreciation of what each registration option will entail now and the near future.