The various types of business structures that can be formed in Zambia are explored In this article
Sole Proprietorship
majority of Zambians work as sole traders in their informal businesses. Because this type of business does not confer legal personality on the business, a single trader is not needed to meet any legal requirements to conduct business. A sole trader, on the other hand, who wishes to do business under a name other than their own must register the business name (Registration of Business Names Act, No. 16 of 2011).
When compared to other types of businesses, being a sole trader has the advantage of not being subject to certain legal regulations. The downside is that a sole trader’s legal liability is unrestricted. Due to a lack of suitable collateral, sole traders have difficulty raising cash. With the passage of the Movable Property Security Interests Act No. 3 of 2016, solo traders can now furnish appropriate movable property security.
Partnership
The English Partnership Act of 1890 regulates partnerships, which are another common type of company in Zambia. A partnership, like a lone trader, does not have a separate legal personality from its partners. A partnership must register a business name that it will use to do business (Registration of Business Names Act, No.16 of 2011).
A general partnership can be formed when two people agree to do business together in the hopes of making a profit. To operate as a partnership in Zambia, the Registration of Business Names Act requires the partnership to apply for registration. The parties are not required under Zambian law to sign a partnership agreement. A partnership agreement merely establishes and specifically specifies the partners’ relationship.
When compared to forming a business, the formation of a partnership is simple and less time-consuming. The drawback is that because a partnership is not a taxable entity, income tax is levied on each partner’s earnings. Another disadvantage is that the partners have unlimited responsibility and are responsible for each other. A partnership cannot also hold real estate in its name.
Companies
The Companies Act, Chapter 388 of the Zambian Laws, allows for the formation of many types of businesses. In November 2017, a new Companies Act (No. 10 of 2017) was passed, however, it has yet to take effect. The new Companies Act is about to take effect, and it will be resorted to in cases where the legal situation has changed since the previous Act, which is currently in effect.
Public and private companies are the two basic types of companies that can be formed under the Companies Act. The following are examples of private companies:
- Unlimited liability companies.
- Limited liability companies.
- Company limited by guarantee.
In Zambia’s corporate sector, private limited companies are common. This is because members’ liability is restricted to the number of unpaid shares. Furthermore, the company’s earnings are liable to taxation (unlike partners and sole traders who are subject to personal taxes). Public firms have the advantage of being able to sell shares to the general public, making it easier for them to raise funds than private corporations.
Some statutory corporations are owned by the Government of the Republic of Zambia and were established by particular acts. These corporations are essentially governed by the statute that established them, rather than the Companies Act’s requirements.
Joint ventures
Joint ventures between foreign entities and local enterprises are encouraged to support economic progress. The Zambia Development Agency is responsible for attracting investment in Zambia by facilitating joint ventures under the Zambia Development Act No. 11 of 2006.
A joint venture (JV) can be set up as a partnership or as a separate entity. There is no legal necessity to draft a joint venture agreement. However, it is recommended that a joint venture agreement be written on paper, detailing the basic terms of the connection, to fully define its existence and regulation.
