Updated: 17 May 2015 05:32. By, Melkisedeck Shine.

Forms of Business Structure

There are several legal forms to choose from when selecting the best means of structuring your business. Carefully considering the various options before start may save time and money later. There are several forms of business structures including:

Sole proprietorship

A sole proprietorship exits where individual carries on business for his or her own account- that is, operates and owns the business as a sole person. A proprietor cannot employ himself or herself. Benefits and obligations are the responsibility of the sole proprietor.

Sole proprietorships are registered with the government if the business differs from the owner’s personal name. Business names are registered with the Local Governments in Tanzania.

Partnership

A partnership is defined as two or more persons, whether individuals, partnerships or corporations, carrying on business together. A partnership is not a legal entity separate from its partners. In other words, one partner’s actions bind all the partners of the partnership.

Each partner in a partnership is liable for all debts of other partners and the partnership to the full extent of their own personal assets during the time one is a partner.

Partnerships are also registered with the Local government.

There are two types of partnership:

(i) General partnerships:

These are the partnership that should meet the following criteria:
(a) It must be a business
(b) The business must be carried on with a “ view to profit”
(c) There must be an agreement to carry on business in common and to share the profits.

(ii) Limited partnership:

In the limited partnership the liability of each limited partner is restricted to the amount of money or other property which that partner contributes or agrees to contribute to the limited partnership. A limited partner is basically a passive investor rather than an active participant in the operation of the limited partnership and business.

Return from the partnership is limited to payments of money. If a limited
partner takes part in control of the partnership, that partner loses limited
liability and becomes a general partner.

General partners do not have limited liability.

Corporations

A Corporation is a business entity with share capital and is used more frequently to carry on commercial activities.

A Corporation is a separate legal entity separate in law from its owners, shareholders of the corporation. The shareholders obtain shares in the corporation by providing the corporation with money, property or services.

Shareholders are only responsible for the debts of the corporation if the shareholders guarantee the payment of the corporation’s debts. An individual may be both a shareholder and an employee of the corporation.

The corporation is managed by the directors and officers of the corporation who are not required to own shares in the corporation. A Corporation may be registered or chartered by either the Local Government or the Central Government.

Other forms of business structures.

Co-ownership:

This is the name given to a situation where two or more persons own property jointly. Each co-owner owns and is free to deal separately with his or her interest in the property unless that interest is limited by contract with the other members.

A joint venture:

A joint venture involves a combination of resources by two or more persons in order to conduct a commercial venture jointly under agreed rules.

A joint venture may take the form of a co-ownership property, a partnership, a limited partnership or a corporation.

The major objective of a joint venture is that each participant is able to protect his or her interest in the joint venture.

A franchise:

This is an arrangement established by contract where one person, the franchiser, grants a right to another person, the franchisee, to use a trade mark and/or the services of the franchiser and/or requires the franchisee to conduct its business in accordance with prescribed operating methods and procedures controlled by the franchiser.

The franchiser provides the franchisee with know-how and expertise. This may include training, furnishing of management and accounting system, site selection, construction of premises, provision of inventory, administration of advertising and marketing programmes.

The franchiser maintains continuing interest in the franchisee’s business. The franchiser has a continuing right to receive compensation from the franchisee through fees, lease payments, or by the sale of products to the franchisee for resale.

A license:

This is a contractual arrangement where the owner of a patent, trademark, copyright, know-how or technical data grants to another person the right to use this property in consideration for royalty fees. The licensor has little or no control over the licensee’s business

Licensees and franchisees are independent contractors and not employees of the licensor/franchiser.

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