If you are currently running a business, the legal framework you’re operating under could be a sole trader, partnership, private or public limited liability company or a non-profit organisation. Either of these institutions offer benefits or drawbacks to the owner.
It’s advisable that you take some time to reflect on the current structure to see if serves your purpose. Will you achieve your goals effectively through that structure? Some of these structures can expose you to unfavourable political, economic or legal factors. You, as the owner, need to ensure that the value of the business is safeguarded because the legal framework you choose will have an effect on your tax or legal liability, and also can impact negatively or positively on the growth potential of the business.
As an entrepreneur, don’t leave the law to decide on what legal structure you are operating under when issues do arise in the future. Make a decision now on the most appropriate legal framework that will address your future needs. If you are yet to start a business make the right decision now on the best legal framework before starting your business. The structure you choose now will affect operating efficiency, transferability of ownership, control, the way you report income, the taxes you pay and your personal liabilities. If you don’t know which route to take consult your lawyer or accountant for advice because certain tax laws might make it difficult to change your legal structure after you commenced operations. In deciding on the legal structure you should consider the issues discussed below.
The kind of business you intend to have can determine the structure you should choose. If you are providing auditing, accounting or legal services, a partnership would be ideal. Other businesses would do well with a sole trader or a limited liability company. So look at the industry you will be operating in and see which legal structures are appropriate. You don’t have to make this choice in isolation. You also need to consider other factors as well which are discussed below.
The other consideration is the cost of setting up the business. Some structures are easy and less expensive to set-up with minimal amounts of paperwork and red tape. Costs that you would normally incur in setting up a business are registration and business license fees.
Some more complex business structures will general be more expensive to set up and require more time to administer the business. You need to factor this during the start-up phase. The Registrar of Companies will require annual returns to be submitted and in some cases you have to submit audited financial statements.
The anticipated size of the company can also have a huge influence on what type of business structure to adopt. How many individuals will be a part of your business and the future prospects or vision will determine the size this business will be. If you expect your business to grow then you need to seriously consider how you will raise the capital for future expansion. You need to have the end in mind. A sole trader or a partnership might be restricted in the ability to raise capital. Until your business has grown and has gained a good credit rating, it will usually be difficult to get business loans which would help your business grow. On your own it’s very difficult to grow the business faster because there are limitations and it takes time to raise adequate capital to grow the business. So if your vision is to grow the business it would be advisable to set a legal framework that will allow this.
Another important consideration is how much control you want to exercise in your business. If you want to own and run the business completely alone then you might choose a sole trader. Control has to do with who is the decision maker in that enterprise. The decision maker will control the management of the business, determine who receives profits, decide whether to get loans or invite outside investors, and be solely responsible for the company’s financial performance.
Tax liability is a major factor to consider when setting up a business. The amount of taxes paid yearly can make or break a business. Some structures are efficient on tax planning whereas in others you will not enjoy some of the tax breaks that you get in other legal structures.
When selecting a legal structure you should think of how much personal liability you would want to carry in the business. Some legal structures do not protect personal assets from business debts. In a sole trader you will have unlimited personal liability. As a sole trader, you will be responsible for all debt incurred by the business. It’s therefore very important to choose a structure that will separate your personal assets from business operations, that way you will protect your personal assets.
You should also consider how easy it is to transfer your ownership to another person. Depending upon the legal structure, a person’s ownership in a business may be transferred, on retirement or if deceased, to another owner in whole or in part simply by the exchange of a document.
Not all business forms are perpetual, they can’t continue into the future after the owner has died. Some forms of business cease when the entrepreneur exits the business. It is therefore important to consider the continuity of existence of your business. If you want the business to be terminated upon your death then becoming a sole trader is the most appropriate option but if you wish to secure your family’s financial future, it is more appropriate to select a legal structure that does not come to an end if you are incapacitated.
To have peace of mind choose the right business structure that aligns with your business’ strategy and goals.
About the author
Stewart Jakarasi is a business & financial strategist and a lecturer in business strategy and performance management. He provides advisory and guidance on leadership, strategy and execution, preparation of business plans and on how to build and sustain high-performing organisations. For assistance in implementing some of the concepts discussed in these articles please contact him on the following contacts: firstname.lastname@example.org or +266 58881062 or on WhatsApp +266 62110062
Why invest for the future
AN investment plan forms a critical pillar of a financial plan, says Tokiso Nthebe, a local author and financial services adviser.
Nthebe, the founder of TKO Financial Wellness and Advisory, says when people invest, they can use their money to buy assets that will increase in value over the long term.
He says these assets can help them build wealth.
“When you invest, your money starts to work for you by providing returns that will beat inflation,’’ Nthebe says.
Nthebe says there is a huge difference between saving and investing.
He says investing requires that you take some level of risk in exchange for an expected return or growth.
Nthebe says Basotho should consider many factors before they decide to start investing.
“It is important to have a clear strategy that guides your investment decisions and to work with qualified professionals,” he says.
Nthebe says one should consider their growth mind-set, investment goals, and their risk tolerance.
In addition, one should consider what kind of growth or return they expect.
He says one should find out whether the institution they invest in is licensed or regulated and how long one should invest.
Nthebe says one should further consider what risks are associated with the investment option and whether there are any associated costs.
He says it is also important to remember that investments take time.
“There are no short cuts to building wealth. Do not fall prey to get-rich-quick schemes,” he says.
Moreover, Nthebe says the investment landscape comprises commercial banks, asset management companies, and insurance companies.
He says each provides different financial products and services.
Nthebe says the Central Bank of Lesotho (CBL) also offers investment solutions such as treasury bills and treasury bonds that Basotho can consider.
Depending on your investment goals, he says financial service providers have a wide range of investment solutions to choose from that cater for short, medium, and long-term goals.
“I encourage Basotho to do thorough research and seek professional advice before making financial decisions,” he says.
Vince Shorb, the United States National Financial Educators Council CEO, writes that “many of the financial problems people face today started when they were young and making their first financial decisions”.
Shorb further says taking on too much debt, not investing early, and failing to plan can take one decades to recover from such.
However, it takes financial literacy to make good decisions, he says.
Financial literacy has been perceived as a tool that gives you the opportunity to be confident and empowered to live the quality of life you have worked hard for.
Shorb says one of the wisest decisions one can make to prepare for the future is to invest.
Investment has been defined as the commitment of funds with a view to minimising risk and safeguarding capital while earning a return.
When Covid-19 hit and the government shut down all gatherings in April 2020, there seemed no way out for ICONICS (Pty) Ltd, a budding events management company based in Leribe district.
They had two options: shut down or innovate to keep the business going.
They chose the latter.
Three years down the line, ICONICS (Pty) Ltd has completely transformed itself from an events management and public relations company into a manufacturing company that is now the envy of Lesotho.
“The closing of events translated into the closing of our business,” Rapitso Mosebetsi, one of the co-founders of ICONICS (Pty) Ltd told thepost this week.
Mosebetsi established ICONICS in partnership with Tumo Mahapa.
Faced with collapse, Mosebetsi say they began buying Personal Protection Equipment (PPE) such as surgical gowns, disposal coveralls and safety apparel for resale.
Eventually they decided to manufacture the PPEs and safety clothing. That was the turning point.
But since the company was already down, Mosebetsi says diversification was a hard nut to crack.
“It became quite a long journey (for us),” he says. “We had to come up with something new for the industry.”
He says they had to overcome stiff competition from giant companies and come up with something unique that would set them apart.
“That was how thermal heating apparel was born,” he says.
“We are the first company to produce thermal heating apparel,” he says.
The company manufactures thermal clothing, which is electric clothing, using power banks of five voltages.
“The voltage is so low to electrocute a person,” he says.
The clothing also has a power button to turn it on and off.
Mosebetsi says the thermal heating apparel is on corporate clothing as well as high-visibility clothing.
Mosebetsi says they started the journey with the support of several organisations, such as the Lesotho National Development Corporation (LNDC) and the Basotho Enterprises Development Corporation (BEDCO), to build their capacity.
Mosebetsi says they also got mentorship support from organisations such as the Global Entrepreneurship Network.
The results of years of hard work are now all out for everyone to see.
In 2022, ICONICS won the M100 000 Business Plan Competition hosted by BEDCO.
This grant enabled them to acquire land and buy five more industrial machines.
This did not only enable the company to increase their production to 100 worksuits a week, but it further created permanent jobs for five people as well as three temporary workers.
Last year, the company took part in the Exporter of the Year event hosted by the LNDC in partnership with the Lesotho Post Bank and the United States Agency for International Development (USAID).
Mosebetsi says they won the award for Lesotho’s most innovative and versatile exporter.
He says this did not only put them in the spotlight, but it further encouraged them to do more.
ICONICS was announced as the best exporter of the year at an event hosted by the LNDC earlier this month.
Mosebetsi says this made them proud, as the award is aligned with their vision.
The award further gives the company an opportunity to participate in the regional competition.
He says this opportunity will further give the company a competitive edge in terms of production locally and globally.
“It will be an honour if we can win the regional competition,” he says.
In terms of markets, Mosebetsi says the company has had the opportunity to list their products in the African Trade Market since 2020 with the support of USAID.
This is an e-commerce platform that opens up the market for African countries to list their products.
Mosebetsi says the company did not only get publicity, but the client database also increased.
He says they moved from supplying individuals only to big companies, different organisations, and different government departments such as those involved in mining and health.
Considering the decline of the Lesotho textile industry, Mosebetsi says their secret to success has been their being innovative.
“Our sustainability is matched with innovation,” he says.
Mosebetsi says it also requires patience coupled with lots of investment in terms of time.
“Rome was not built in one day,” he says.
He says working as a team also plays a critical role.
Despite their achievements, Mosebetsi says the market for innovative industries is one of the hardest nuts to crack.
He says the company is in the process of not only making their products known but also educating people about their safety.
Mosebetsi says the other challenge is the decline of the South African Rand as compared to the US Dollar.
He says some of their materials are sourced from China.
Therefore, it is more expensive to buy such materials.
ICONICS is not only seeking to make their brand well known globally, but Mosebetsi says they are also seeking to create more jobs for our youths.
LetsGo and Win!
LETSHEGO Financial Service has launched the LetsGo and Win loan consolidation campaign where customers win weekly and monthly cash prizes of up to M150 000.
The campaign, which was launched yesterday, will end on November 8.
The LetsGo and Win campaign rewards customers for consolidating their loans.
It is aligned with Letshego Lesotho’s version to offer competitive products that cater for the evolving needs of its customers.
The financial services company operates in Lesotho, Botswana, ESwatini, and Zambia.
The Marketing Manager and Business Partner, Tšotetsi Seema, said Letshego Lesotho is committed to delivering increasing value and options to customers.
Seema said this programme is a testament to that commitment.
“The campaign invites customers to consolidate their loans into one low and easy repayment with reduced rates and they stand to win weekly and monthly prizes,” Seema said.
“The weekly cash prizes will be won by lucky customers randomly selected and notified through Letshego Radio shows,” he said.
Additionally, he said two lucky customers will be randomly selected each month and given a chance to spin the wheel of fortune with a chance to receive a maximum of M20 000 each.
“The loans consolidation campaign makes it easier for customers to choose Letshego Lesotho as their preferred financial services partner.”
He said this innovative campaign aims to help individuals streamline their debt payment while benefiting from reduced interest rates.
“Debt consolidation can help customers get a lower monthly payment, pay off their debt sooner, increase their credit score and simplify their life.”
Letshego Lesotho’s Head of Sales, Distribution and Marketing, Motebang Moeketsi, said managing multiple loans can often be overwhelming with varying interest loans due dates and terms.
“The campaign addresses this challenge by combining multiple loans into a single, easy to manage repayment plan,” Moeketsi said.
He added that this simplification not only eases the financial burden on borrowers but also potentially leads to significant savings over time.
Moreover the new consolidation campaign invites customers to take advantage of their best-in-class financial services provided through Letshego Lesotho branch network and digital platforms.
“Letshego Lesotho is committed to increasing financial inclusion through its efforts to serve underbanked communities, promoting financial literacy and delivering positive social impacts for its customers and communities.”
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