What is the best type of business to register?

The best type of business to register depends on several factors. These factors include the nationality of the investor or entrepreneur, the nature of the business or activity, the capital investment, and the size, and structure of the business amongst others. Depending on the above factors, one may register a business as a sole proprietor, Partnership, Company Limited by Shares, Company Limited by Guarantee as well as an External Company.

Ghanaian startups and small businesses may consider registering as a Sole Proprietor Business as the best type of business. It is the simplest form of business registration in Ghana. Registering a Sole Proprietor business is less expensive and less cumbersome. The registration process requires minimal accounting costs, regulatory paperwork, and governance structure.

Unlike Sole Proprietor Business, registering a company limited by shares or an unlimited Liability company comes with a complex corporate governance structure. It involves large record-keeping and regulatory paperwork. A company limited by shares or an Unlimited Liability Company is ideal for companies making high investments. These companies are usually more expensive to operate and complex to manage.

On the other hand, if a foreign company intends to operate a representative office in Ghana, External Company registration is recommended, especially if the company is originally incorporated in another country. The registration of an External Company in Ghana does not confer full incorporation under the laws of Ghana, and therefore such a company is not permitted to carry out complete trading or operations in Ghana as would be the case for a company limited by shares.

For companies that do not intend to engage in a profit-making business but to serve a public, social, or political goal, registering as a company limited by guarantee is preferable. This type of business is ideal for churches, schools, not-for-profit organizations, development organizations etc.

NOTE

It is important to note that, the level of ownership and operational activity of your business categorize your business under one of the types of businesses explained above and further determines the registration processes to be undertaken. Generally, the registration process involved in registering each type of business differs greatly. However, Sole Proprietorships and Partnerships are much easier to register, operate and manage as compared to Limited and Unlimited Liability Companies, NGOs, and External Companies.

Factors to consider when choosing a business structure.

The factors to consider when choosing a business structure are.

• The size of the proposed business- The size will determine the right type of business registration to choose. The size will also determine the tax compliances, management, and other required regulations.
• The business objects- The business objects will determine the best company structure to choose. For example, for charity work, a company limited by guarantee is the best to do.
• The share structure- The share structure of the company must be considered when registering a company limited/unlimited by shares. The limitation of shares will influence liability protection.

A brief overview of the available business options in Ghana

Sole Proprietor Business

What is Sole Proprietor Business?

Sole Proprietor Business is a form of business entity in which one person owns all the assets and assumes all the debts of the business. It is also referred to as a Proprietorship or an Individual Proprietorship. The owner of the proprietorship is called the Proprietor.

A sole Proprietorship is exclusively owned by Ghanaians and is ideal for startup businesses owned by a single person. Foreigners are not eligible to register sole proprietor Businesses.

Compliances for a sole proprietorship

Sole Proprietor businesses are required to file for annual renewal in the subsequent year after registration. According to Section 5A of the Registration of Business Names Act, 1962, Act 151:

“(1) Once in a year an individual or company registered under this Act shall submit to the registrar a renewal notice in the prescribed form renewing the registration.

(2) Without prejudice to any other liability prescribed by this Act, a registration which is not renewed in accordance with this section shall lapse and the Registrar may remove from the register the business name of the person whose registration has lapsed after the expiration of the period prescribed for the renewal.

(3) In the case of a person registered between the 1st day of January and the 30th day of June in a year, the renewal notice shall be delivered for registration within twenty-eight days after the 1st day of January each year. Further, in the case of a person registered between the 1st day of July and the 31st day of December in a year, the renewal notice shall be delivered for registration within twenty-eight days after the 1st day of July each year.”

Advantages of Setting up a Sole Proprietorship

• It is quick and easy to set up.
• It is less expensive.
• It is less cumbersome.
• It requires only one owner.
• It requires minimal accounting costs.
• Minimal paperwork and record-keeping requirements.

Disadvantages of Setting up a Sole Proprietorship

• It does not have shareholders, directors, secretaries and auditors.
• Only one person can own and operate a Sole Proprietor business.
• It has unlimited personal liability for debts and claims.
• It is more challenging to acquire huge loans and contracts with this type of business.
• It has limited opportunities as most big firms are reluctant to do business with sole proprietor businesses.

See Also: Registering a Sole Proprietorship Business in 2023

Partnership

What is a Partnership business?

A partnership business is where two or more people (up to a maximum of 20) decide to go into business together for the generation of profit. They may decide to do so through an incorporated partnership registered at the Office of the Registrar of Companies.

Only Ghanaians are eligible to register a partnership business. The Registrar General Department requires partnership businesses to renew their registration annually. This type of business is ideal for a group of professionals in the same line of work where each partner has an active role in running the business. Business Partnerships may include medical professionals, lawyers, accountants, consultants, finance & investing, and architects.

Compliances for Partnerships

According to the Incorporated Private Partnerships Act, 1962 (Act 152) Section 8; under “Annual Renewal of Registration.

(1) Once every year the partners shall deliver a statement – in the prescribed form- to the Registrar to renew the registration.

(2) In the case of every partnership registered between the first day of January and the thirtieth day of June in any year, the notice shall be delivered for registration within twenty-eight days after the first day of January each year: and in the case of every partnership registered between the first day of July and the thirty-first day of December in any year, the notice shall be delivered for registration within twenty-eight days after the first day of July each year”.

Advantages of Setting up Partnership Firms

• A partnership is very simple, flexible and easy to register.
• A partnership is not subject to corporate taxes. Most of the statutory returns and forms that must be filed by limited companies do not apply to partnerships.
• It helps in the execution of a partnership deed.
• It has easy regulation.
• Disadvantages of Setting up Partnership Firms
• The liability of a Partnership is limitless.
• It is impossible to transfer ownership.
• It is difficult to exert control in the organization because all the members have equal rights.

See Also: Six Costly Business Start-up Mistakes Investors Make in Ghana

External Company

What is an External Company

An external Company (also known as a branch or Liaison Office) is incorporated by a foreign corporate body incorporated under the laws of the foreign country which seeks to register a branch office in Ghana. Although Ghanaian income tax laws apply to an external company, the company is ultimately governed by the laws of the country where it was initially incorporated. This type of company requires only a local manager. The registration process requires a notarized power of attorney. It also requires the Parent Company to provide notarized copies of its registration documents in English, if the original version is in a different language. The purpose of an External Company is not for profit generation in Ghana, therefore, once it engages in such, the company will be liable to pay corporate tax as well.

Company Limited by Shares

A limited liability company or a company limited by shares is a business entity where the value of the shares held by members determines the limit of their liability. It comprises at least two directors and one or more shareholders (Company or Individual).

In other terms, a limited liability company refers to a company where the liability of its members is limited to the amount (if any) unpaid on the shares held by them. Similarly, the directors of a company limited by shares are also not liable for the debts of the company. A company limited by shares is ideal for both foreigners and Ghanaians who seek to establish profit-generation business enterprises in any sector in Ghana.

Advantages of Setting up a Company Limited by Shares

• It protects the personal assets of the shareholders. The company protects the personal finances of its shareholders and limits their responsibility for company debts up to the nominal value of their shares.
• It enhances tax efficiency and planning.
• It enhances investment and other financial opportunities.
• Disadvantages of Setting up a Company Limited by Shares
• It is very expensive to manage.
• The accounting requirements are more complex and time-consuming.
• The company registration process is cumbersome.
• Companies are required to adhere to strict record-keeping requirements, including taking minutes of meetings and recording all decisions taken by directors and shareholders.
• Company registers and records must be maintained and made available for public inspection at the registered office.

See Also: How to Register a Company Limited by Shares in Ghana

Unlimited Liability Company

An unlimited liability company is a company where the shares of the owners are unlimited. It has the same composition as a Limited Liability Company except that the shares of the shareholder under this type of business are unlimited.

Unlimited liability means that shareholders are responsible for all of the company’s debts and liabilities, even those that the company cannot pay. This amount can be more than the initial amount that they invested when subscribing for shares. Professional bodies such as law firms, auditing firms, and others typically register this type of company.

Compliances for Company Limited by Shares & Company Unlimited by Shares

• Auditor- The Companies Act, act 992 requires every company to have an auditor to review and verify the accuracy of financial records and ensure that companies comply with tax laws.
• Annual General Meetings (AGM) – According to the Companies Act 2019. Act 992, Section 157. (1) Except as provided in subsection (4), a company shall (a) in each year hold a general meeting as the annual general meeting of the company in addition to any other meetings in that year, and (b) specify the meeting as the annual general meeting in the notice calling the meeting. (2) Not more than fifteen months shall elapse between the date of one annual general meeting and the next.
• Board meetings – According to the Companies Act 2019, Act, 992, Section 158: (1) An extraordinary general meeting may be convened by the directors whenever the directors think fit. (2) If at any time there are not within the Republic sufficient directors capable of acting to form a quorum, a director may convene a meeting.
• Annual returns – Section 126 (of the Companies Act, 2019 (Act 992) requires all companies registered in Ghana to file Annual Returns with the Registrar General’s Department (‘RGD’) thirty-six (36) days after their financial statements have been dispatched to its members and signed by directors.
• Keeping the statutory books of the companies – Companies in Ghana must create and maintain a collection of statutory registers, commonly referred to as ‘company books’ or ‘statutory books’. It is necessary to keep these books consistently updated.
• Corporate Tax- Every company must pay 25% of its annual income as corporate tax, along with paying Income Tax and PAYE for salaried workers.

Company limited by guarantee

A company limited by guarantee is also known as a Not-for-Profit Organization. This is because it is usually not a profit-making business. Here, the subscribers guarantee an amount towards the liability of the company in the event of winding up. Although these companies must pay income tax on behalf of any of their salaried employees, they receive an exemption from corporate tax.

Similar to companies limited by shares, both Ghanaians and foreigners are eligible to register this type of business.

Compliances for Companies limited by guarantee

• Auditor- The Companies Act, act 992 requires every company to have an auditor to review and verify the accuracy of financial records and ensure that companies comply with tax laws.
• AGMs – According to the Companies Act 2019. Act 992, Section 157. (1) Except as provided in subsection (4), a company shall (a) in each year hold a general meeting as the annual general meeting of the company in addition to any other meetings in that year, and (b) specify the meeting as the annual general meeting in the notice calling the meeting. (2) Not more than fifteen months shall elapse between the date of one annual general meeting and the next.
• Board meetings – Section 158 (1) of the Companies Act 2019, Act 992 states that the directors may convene an extraordinary general meeting whenever they deem it necessary. (2) If at any time there are not within the Republic sufficient directors capable of acting to form a quorum, a director may convene a meeting.
• Annual returns – According to Section 126 of the Companies Act, 2019 (Act 992), companies in Ghana must file Annual Returns with the Registrar General’s Department (‘RGD’) within thirty-six (36) days after they dispatch the financial statements to their members and have them signed by directors.

Companies in Ghana must create and maintain a collection of statutory registers, known as ‘company books’ or ‘statutory books’, to keep the records of the company. You must keep these books updated at all times.

Registration Requirements for Business Registration.

The requirements of every business registration depend on the type of business. The fees, structure and processes differ in all types of business registration. However, Listed below are the general requirements for business registration

General Requirements

• Business Name
• Nature of Business (Give a brief description of the company’s business activities)
• Address of business (House Number or Building Name, Street Name, City, District, Region)
• Email, Telephone number and Postal Address of the business.
• Personal details of the proprietor of the business or members of the company
• (Nationality, date of birth, occupation, contact, email, and residential address).
• Tax Identification Number of the proprietor of the business or members of the company.

Unique Requirements

There are specific requirements that are applicable to the different types of business registration. These requirements are;

• Stated Capital
• Authorized Shares
• Notarized Incorporation documents
• Power of Attorney
• Auditor’s Consent Letter
• Partnership Deed
• Other Requirement

Stamp duty is 1% of the stated capital. For example, a stated capital of GHS100,000 is equivalent to a stamp duty of 1% x GHS100,000 = GHS1000 The minimum amount of stated capital for all 100% Ghanaian-owned limited liability companies is 500 Cedis.

However, companies with joint foreign ownership and 100% foreign ownership have different stated capital requirements. The stated capital requirement for companies in these categories are;

• 100% foreign ownership –US $ 500,000
• A joint venture between a foreigner and Ghanaian – US $ 200,000
• Trading enterprise (whether jointly owned or 100% foreign owned) – US $ 1,000,000
• You must pay incorporation and filing fees upon submission of business registration forms. The total cost is GHS450 which is payable directly at the Office of the Registrar of Companies by cash.

Steps to Register a Business in Ghana

1. Conduct a business name search to ascertain the availability of the business name.
2. Apply for a Taxpayer’s Identification Number for the Proprietor of a Sole Proprietor Business, the members of a company or Partners in a Partnership firm at the Ghana Revenue Authority Division of the Registrar General’s Department.
3. Download or purchase the registration form at the in-house bank at the Registrar General’s Department
4. Complete the set of required business registration forms with the right information.
5. Pay the filing and statutory fees for the business registration process at the in-house bank at the Registrar General’s Department.
6. Submit the registration forms to the Registrar General’s Department.
7. Collect registration documents after 2-3 weeks of submission.

What is the Cost of registering a business in Ghana?

The table below indicates the cost of registration for the various types of businesses indicated above.;

Table 1: Cost of business registration in Ghana 

Conclusion

As an entrepreneur or an investor, you must consider the type of business registration that fits perfectly with your business objects before you initiate the business registration process.

FAQs

• How many types of business and Company registration are in Ghana?

There are six (6) types of business/ company registrations in Ghana.

• What is the best type of business to register?

The best type of business to register is to a great extent dependent on the nationality of the investor or entrepreneur, the object activities and the size of the intended business.

Bear in mind, for Ghanaian start-ups, Sole Proprietorship or Partnership is the proposed type of business to register. For foreigners, a Limited Liability Company is the best type of company registration to opt for. Whereas a Company Limited by Guarantee is the best type of company to register for a philanthropic or charitable organization.

Choosing the best type of business/company registration can help prevent mistakes during registration or financial loss for wrong business filing.

• Can you run a business with one person?

Yes, one person owns a Sole Proprietor business. However, only Ghanaians can register.