What Is The Importance Of Registering Your Business? My guest from PACRA, Mr. Wilson Banda, an Assistant Registrar in charge of the Commercial Department provided insights into the registration process of a company in Zambia. His insights are much appreciated and I hope you find value in this article.
The Commercial Department at PACRA where Wilson is in charge deals with registration, business names, and companies. Wilson has over 12 years of experience at PACRA having worked as a senior inspector for 11 years. Do comment, share, and like at the end of this article if it has helped you in any way. Let’s get started.
Why is registering a business so important? You’re calling it formalizing. Why should somebody formalize their business?
- The first reason why it’s important to formalize a business is so that you can protect the reputation and the name of your business. Just like a person, businesses have names. You have a name and your name will either give you a good reputation or a bad reputation. The same applies to businesses in the industry.
- Secondly, the formalization of a business gives assurance to other stakeholders such as suppliers, banks, government agencies that you have a stable business. Your details are contained in a particular registry where they can check and confirm that you generally are dealing in a particular business.
- Thirdly, it’s important to register your business because as you grow, you’d want to separate yourself from the business. Later on, when you decide to leave your business or if you do pass on, the business can employ other people. This enables your children or beneficiaries to take over that business, and it can run independently. I’m sure you are aware of a lot of businesses that are over 100 years old and have continued to grow because they’ve been formalized and they’re not dependent on a particular person. It’s also easy to sell the business if it’s formalized.
- Lastly, you can also earn revenue by selling the name of the business, as long as its trademarked. So other than just registering a business, PACRA also provides for the registration of trademarks. You can register a trademark after you have established your business. This enables you to use your logo or signage as part of your marketing. Trademarking your business also improves your branding as well as market positioning.
What are the types of business entities that can be registered at PACRA?
First of all, we have what we call business names. Business names are trading names, they are not companies. They are three types of business names. There are sole proprietors, partnerships, and registration for a business name by a company.
Speaking about the registration for a business name by a company, you need to know that in law, the company is also a person. A company can own property, land, or cars, so because a company is a person by law, it can also own a business name, simply a company can also register a business name.
Registration of a business name by a company is the creation of an artificial person. Some people register the company because it’s required in certain sectors. For example, a bank can’t be a business name or a sole proprietorship, it has to be an independent person, because of a lot of rules and regulation attached to shareholding and directors. So you need to check with PACRA if you are required to register your business name because of the sector you intend to operate in.
They are two types of company registrations; public limited companies and private limited companies (PLC).
Private Limited Company
This is a registered company formed and owned by individuals other than the Public. Its name will always end with the word “limited”. The minimum number of Directors and Shareholders required for a private company is two (2). Private Companies do not invite the public to buy their shares or debentures.
The following are the types of private limited companies that can be incorporated:
1. Company limited by Shares;
2. Company limited by Guarantee; and
3. Unlimited Company.
Private Company Limited by shares
Companies limited by shares have a share capital and are formed or incorporated for purposes of carrying on business to derive a profit. Currently, the minimum required authorized capital for a private company other than banks, insurance, and other financial institution, is K15,000.
A Private Limited Company may not have more than fifty (50) shareholders. It nevertheless may have the capacity to enter into any type of legal activities as long as its articles do not restrict it. As stated above, this type of company is prohibited from making any invitation to the public to purchase its shares or debentures. And in case it winds up and its assets are insufficient to cover its liabilities, the liability of its shareholders is limited to the amount left unpaid on their shares.
A company limited by Guarantee
A company limited by guarantee does not have a share capital and is not permitted to carry on business to make a profit for its members or anyone concerned in its promotion or management. These are normally formed to help the community benefit from a certain project. Mostly, these are organizations such as churches, foundations, trusts, etc.
At the time of formation, each member must sign a declaration of guarantee, specifying the amount he undertakes to contribute if the company is wound up. And in case it winds up and the assets are insufficient to cover its liabilities, the liability of its members is limited to the amount so guaranteed.
Unlimited Company
An Unlimited Company is one that has a share capital but whose members have unlimited liability for the company’s debts and liabilities. In other words, whatever is incurred by the company is also deemed to have been incurred by the members.
In terms of membership, it equally may not have more than fifty (50) shareholders. There are exceptions, however. To incorporate an Unlimited Company, Companies Form 4, Form 5, and Form 11 are used.
Public Limited Company
A Public Limited Company states in its articles of association that it is a” Public Limited Company”. Its name always ends with the words “Public Limited Company” mostly abbreviated as “PLC”. It has a share capital and its authorized minimum capital is K1,000,000.00. It has the capacity of entering into any business activity unless restricted by its articles.
Foreign Company:
Registration of a foreign company is governed by the Companies Act No. 24 of 2011 of the laws of Zambia. A foreign company is a company that is already registered in another country and it is therefore considered as a branch of the original company. It is a must that at least one and no more than nine individuals termed as local directors are authorized to conduct and manage the affairs of the company in Zambia. If they are two such directors, at least one should be resident in Zambia.
If they are more than two (but not more than 9) however, more than half of them should be residents in Zambia. After completion of the Name Clearance, two sets of application form No. 46 are to be completed i.e. Registration of a Foreign Company. This form is accompanied by a copy of the Certificate of Incorporation from the country of origin and its charter, statutes, regulations, memorandum, and articles, and any other relevant information. The company should also indicate the name of the firm, corporate body, or an individual resident in Zambia that would be authorized to act as the documentary agent. The application fee to be paid upon completion of the process is ZMW4,166. The end of the process is marked by the issuance of the Certificate of Registration.
Can you register a name with the Municipal Council? How does that work?
The way it’s supposed to work is that any person who uses a name that is not their natural name in trading must register the name. That is, what Section 4 of the registration of the Business Names Act provides. Once you start using a name other than your natural name for trading, you must start with the registration of that name at PACRA. The licenses that are obtained from the Council are different. Those licenses allow businesses to trade in a particular location.
The one thing you must note is that when you register a business name or company you can use that particular entity anywhere in the country. You can open two or three branches or two or three shops in different towns under the same name, and then you will probably have to pay different local authorities their levies.
For example, if you have established a registered business in Lusaka, and you have a branch in Mazabuka, you’ll have to pay levies to the Councils in Lusaka and Mazabuka, However, these levies are all paid under the same business name.
Currently, PACRA is working with local authorities around the country (Zambia) in ensuring that business owners formalize their businesses. This is to protect entrepreneurs.
So do I have to be a big business for me to come to PACRA and register my business? How can I even my shop at City Market or Kamwala should I come to background register my name?
The way it is is that for example, if you are selling vegetables in your back yard or by the roadside, it’s a very basic kind of business that you are not required to register. But the minute you for example set up a Barbershop or a Salon in a particular location such as a shopping mall, where you now have a landlord and establish signages and all that, it becomes important to formalize the business.
And also if there are growth opportunities, it becomes very key to register the business. My advice is that the minute you know that you want to start a serious business then formalize it. This is the season for mangoes. If you’ve got lots of mangoes in your backyard, and you want to sell them at the roadside, it’s possibly not relevant for you to formalize. But if you have chickens and you sell eggs and all that, why not register the business. That way you start supplying big shopping retail outlets. You can only do it with a formalized business.
What are the consequences of not registering your business?
- The first thing is that if you’re using a name that is not your natural name, the registrar has the power to take action. It’s an offense for anyone to trade using different names apart from the natural names. If you decide to use other names apart from your natural name to trade, you must register that particular business.
- Secondly, you may lose out on opportunities for growing your business. Your customers may not know and appreciate what you are providing or offering to the market. Besides, if someone else registers the name you trade under, you could lose out on a brand that you worked so hard in creating and someone else comes and steals that name because you didn’t protect it.
How do you register a company with PACRA?
The registration procedure starts with Name Clearance. Registration of a Business Name is governed by the Business Names Act No. 16 of 2011 of the Laws of Zambia. Business registration takes about three working days.
