Legal Issues of Entrepreneurship in Kenya

ENTREPRENEURSHIP AND COMMUNICATION

LEGAL ISSUES FOR ENTREPRENEURSHIP

LEGAL FORMS OF BUSINESS

There are three basic legal forms of business formation and one new form that is gaining acceptance. The three basic legal forms are:

1. Proprietorship,

2. Partnership, and

3. Corporation, with variations particularly in partnerships and corporations.

SOLE PROPRIETORSHIP

In a sole proprietorship, one person owns the entire business, provides all the capital and assumes all responsibility.

This is the simplest form of a business organisation. A sole trader or a sole proprietor owns the business alone. He provides all the necessary capital and other resources alone. He engages in business on his own account. The business has no existence apart from the owner. It is, therefore, not incorporated into a legal entity but a trading license is required. The law does not recognise a sole trader as a separate entity from his business. Many businesses in Kenya are of this type and include kiosks, general shops and restaurants.

A sole trader is entitled to all the profit and is also responsible for all the losses. This means that the liabilities of the business are the personal liabilities of the sole proprietor as long as he is the owner of the business. This also implies that should the business suffer losses to an extent that the business assets are not enough to pay the debts, the sole trader will be required to pay the debts from his private sources.

ADVANTAGES AND DISADVANTAGES OF A SOLE PROPRIETORSHIP

Advantages

(i) Low start-up costs: It is easy to start a one-person business because there are few legal intricacies. Compared to other forms of business organizations, sole proprietorships are easier and simpler to start and to wind up.

(ii) Greatest freedom from government intervention

(iii) Direct control and decision-making by the owner: The sole trader takes all decisions alone. This means that decisions are made timely...