In our previous discussions I highlighted that your choice of a legal structure for your business is very critical because it will affect operating efficiency, transferability of ownership or shareholding, the control of the business, the way you report income, the taxes you pay and your personal liability. An entrepreneur can choose from these basic structures, namely, sole trader/proprietorship, partnership, private or public limited company. All business legal structures are regulated by governments in terms of initial registration, annual reporting, taxes and operating licenses. So the type of structure you choose has future implications. Some laws make it difficult to change your legal structure once you have commenced operations. To avoid these potential problems, it is advisable to consult your accountant or lawyer who will help you to make well-informed choices.
The simplest of the legal structures for any business is the sole trader/ proprietorship. With this type of business the owner is not legally separated from the business. The business is controlled by one person. Because the business is not separated from the owner all liability rests on the owner. Business creditors can sue the owner for any debts incurred for the benefit of the business. This business structure exposes the business owner’s personal assets. If you want to protect your personal possessions then this structure is not ideal. If you have to raise capital through equity contributions it’s impossible because the structure does not allow outside investors. You will have to change the structure.
The owner is responsible for the taxes. A sole proprietorship does not continue in perpetuity. As soon as the owner passes on the business stops existing. Ownership can be transferred by selling of the assets. The advantages of a sole trader is that it is inexpensive to start and simple to run and when paying tax you don’t have to make separate tax returns. However the disadvantages are that personal liability is unlimited and ownership is only limited to one person.
The second structure is a partnership. It is almost like a sole proprietorship in that the owners are not legally separate from the business. The only difference between a sole proprietorship and partnership is that a sole proprietorship has only one owner and a partnership has two or more owners. The owners pay taxes in their individual capacity after sharing profits. The partners have equal management rights and control, or their responsibilities and control can be spelt out in a written partnership agreement. If a partner dies or leaves the partnership, the partnership will be dissolved unless the agreement specifies or provides for the continuation of the business by the remaining partners.
All partners have equal ownership of all business assets and liabilities or in proportions defined in the partnership agreement. The partnership agreement determines how a departing partner will be paid for part ownership when he or she leaves, dies or retires. The advantages are that ownership is not limited to one person, you can have more than one owners. The disadvantages are that the partners have unlimited personal liability, each partner is legally responsible for the business acts of other partners. On tax issues each partner is required to submit separate tax returns.
The third legal structure is a private or public company which is registered as a separate legal entity from its owners. On registration you have to file company documents with the registrar of companies to effect registration. A fee is paid for the company to be registered. The company will have a separate corporate bank account and all transactions for the company are recorded separately from the owners’ personal transactions. The money generated from the transactions is owned by the company. The company will be required to pay income tax on its profits and also whenever it pays dividends to its shareholders.
The operations of the company are governed by the articles of incorporation which would have been approved by the shareholders. The shareholders appoint directors who will be responsible for overseeing the running of the company and would be responsible for major decisions, including selection of company officers. A company can exist in perpetuity even if one or more of the shareholders/owners dies. The ownership of the company can be transferred by sale of shares. The advantages of a company are that shareholders have limited personal liability and ownership is easily transferred by sale of shares. Other investors can be added by sale of shares. The company can exit in perpetuity. The company submits separate tax returns. The disadvantages are that it is more costly to set up and maintain a company.
The type of business structure to use will depend on a number of factors, from the type of business you are operating to tax implications.
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.”
News1 month ago
Lerotholi students want charges dropped
Business1 month ago
LEC lights the way
News1 month ago
RFP rocked by death threats
Business1 month ago
Nedbank posts strong growth
Business1 month ago
Iconics Clothing bags big prize
News1 month ago
The ‘ear doctor’ driving change
News1 month ago
Police boss hit in pocket
News1 month ago
Child neglect cases on the rise