LEGAL FORMS OF BUSINESS ORGANIZATION
In Kenya, there are three operational types of businesses for-profit enterprises:
Sole proprietorships
Partnerships
Business corporations
Each of these forms entails its own pros and cons. Your sector of activity, the size of your
business, the number of investors and your expansion plans generally determine which legal
form is best suited for your business.
1. Sole Proprietorship
An organization that is owned, and usually managed, by one person is called sole proprietorship.
This is the easiest form of business for you to explore in your quest for an interesting career. The
vast majority of small business start out as sole proprietorships. These firms are owned by one
person, usually the individual who has day-to-day responsibility for running the business. Sole
proprietors own all the assets of the business and the profits generated by it. They also assume
complete responsibility for any of its liabilities or debts. In the eyes of the law and the public,
you are one in the same with the business.
Both personal and business assets are one and the same. All personal assets may be seized by
creditors of the business. It is the least expensive means of operation, but it is also the riskiest in
terms of liability.
1
, Sole Proprietorship
Advantages Disadvantages
Low Costs Unlimited liability
Few formal procedures Taxation rate equal to personal
necessary for start up taxation rate or higher than
Simple to operate corporate rate
Owner in direct control of Death of the entrepreneur
decision making terminates the business
Minimal working capital Difficult to raise funds
required
2. Partnerships
A partnership is an association of two or more individuals and a maximum of 20 who share
management and profits. There are two main kinds of partnerships – general partnerships and
limited partnerships.
General Partnership
General Partnerships are formed when two or more people pool their resources and skills to start
a business. The following details must be specified in a general partnership contract
i. the business’ objectives
ii. the amount of each partner’s investment
iii. The division of the profits and losses
iv. the liability and percentage participation of each partner
v. the succession plan
vi. all special terms
vii. The means for dissolving the partnership
2
In Kenya, there are three operational types of businesses for-profit enterprises:
Sole proprietorships
Partnerships
Business corporations
Each of these forms entails its own pros and cons. Your sector of activity, the size of your
business, the number of investors and your expansion plans generally determine which legal
form is best suited for your business.
1. Sole Proprietorship
An organization that is owned, and usually managed, by one person is called sole proprietorship.
This is the easiest form of business for you to explore in your quest for an interesting career. The
vast majority of small business start out as sole proprietorships. These firms are owned by one
person, usually the individual who has day-to-day responsibility for running the business. Sole
proprietors own all the assets of the business and the profits generated by it. They also assume
complete responsibility for any of its liabilities or debts. In the eyes of the law and the public,
you are one in the same with the business.
Both personal and business assets are one and the same. All personal assets may be seized by
creditors of the business. It is the least expensive means of operation, but it is also the riskiest in
terms of liability.
1
, Sole Proprietorship
Advantages Disadvantages
Low Costs Unlimited liability
Few formal procedures Taxation rate equal to personal
necessary for start up taxation rate or higher than
Simple to operate corporate rate
Owner in direct control of Death of the entrepreneur
decision making terminates the business
Minimal working capital Difficult to raise funds
required
2. Partnerships
A partnership is an association of two or more individuals and a maximum of 20 who share
management and profits. There are two main kinds of partnerships – general partnerships and
limited partnerships.
General Partnership
General Partnerships are formed when two or more people pool their resources and skills to start
a business. The following details must be specified in a general partnership contract
i. the business’ objectives
ii. the amount of each partner’s investment
iii. The division of the profits and losses
iv. the liability and percentage participation of each partner
v. the succession plan
vi. all special terms
vii. The means for dissolving the partnership
2
