In deciding to start a business, one important factor you need to consider is the type of legal structure you want to adopt.
Your choice will influence how much you would spend in taxes, the amount of paperwork required to do for your business, the personal liability you are likely to face and your ability to raise money.
You need to select your business type carefully as each one comes with its unique tax concerns; so be sure that the structure chosen closely suits the needs of your business. Business registration is done at the Registrar General’s Department (RGD).
There are three basic types:
Sole proprietorshipPartnershipCorporationLimited Liability Company
If you started your business as a sole proprietorship, you may later reorganize it to a partnership or another entity when the time comes that you want to take on partners to expand it. If you decide to take this step, be sure to notify the Ghana Revenue Authority (GRA).
This is the simplest business structure there is. It usually involves just one individual who owns and operates the enterprise. If you intend to work alone, this structure may be the way to go.
One major downside to choosing this structure is that you become personally responsible for your company’s liabilities. As a result, you are placing your assets at risk, and they could be seized to satisfy a business debt or a legal claim filed against you.
This type refers to a business owned and operated by several individuals. There are two types: general partnerships and limited partnerships. In a general partnership, the partners manage the company and assume responsibility for the partnership’s debts and other obligations.
A limited partnership has both general and limited partners. The general partners own and operate the business and assume liability for the partnership. Limited partners serve as investors only; they have no control over the company and are not subject to the same liabilities as the general partners.
This is more complex and expensive than most other business structures. A corporation is an independent legal entity, separate from its owners, hence it requires complying with more regulations and tax requirements.
A major benefit for a business owner who decides to incorporate is the liability protection he receives. A corporation’s debt is not considered that of its owners, so if you structure your business as a corporation, you are not putting your personal assets at risk.
Limited Liability Company (LLC)
This is a hybrid entity, bringing together some of the best features of partnerships and corporations.
LLCs provide business owners with the liability protection that corporations enjoy without the burden of double taxation. Earnings and losses pass through to the owners and are included on their personal tax returns. There is no limitation on the number of shareholders an LLC can have.