Sole
Proprietorship:
This
is an individual carrying on business either in his own name or in an assumed
name which is usually referred to as the Trade Name. For example: Mr.Kagya buys
diamonds from Kenya and sells it to Malawi. He does so in his own name. The law
permits Mr. Kagya to make his purchases of diamonds and to sell it to any
person whether in Tanzania or elsewhere. As with any business he will have a
capital, some assets, liabilities from time to time and profits or losses. As
with all business, if need be, he is required to register his business under
the Business Names Registration Ordinance and any other relevant law. He is
required to file tax returns and he is taxed on his profits. He merely has to
satisfy the Tanzania Revenue Authority of the extent of his profit or loss from
his own balance sheet, which need not be audited. The TRA may require him to
audit his balance sheet if there is suspicion as to his income or expenses. As
the business grows Mr. Kagya may hire employees, consultants, and establish
branch offices. In all respects Mr.Kagya is running a business but is not a
company. Mr. Kagya may at the beginning adopt a trading name or register a
trading name later. For example he may call is business “Nshomi Trading Company”. As far as the General Public is concerned
they will be dealing with a business called Nshomi Trading Company.
However
the legal position is that it is Mr. Kagya trading as Nshomi Trading Company.
If a supplier or buyer of diamonds wishes to institute proceedings against the
business he would do so against “Mr. Kagya trading as Nshomi Trading Company.
The liability of Mr. Kagya is personal. If there is a judgment against Mr.
Kagya he is personally responsible to satisfy the judgment. In the event of a
judgment being entered against him he will have to pay up the damages that are
assessed against him personally. If he cannot satisfy the judgment he runs the
risk of being declared bankrupt by the judgment creditor. It is important to
remember that a sole proprietor is personally responsible for his liabilities.
So too, he is the only person entitled to profits. He need not share his
profits.
When
two or more people join together for a common purpose, usually the purpose of
doing business for profit, such an association is called a Partnership.
Partners do business under a trade name for instance Mr. Kagya of the Sole
Proprietorship can bring in his friend Mr. Lau as a partner and can trade under
the name of Nshomi Trading Company. For purposes of the law it really means
Kagya and Lau trading in partnership under the name and style of Nshomi Trading
Company. The Partnership has an existence of its own to the extent that it can
sue and be sued in its own name. However, the consequences of a liability
against the partnership are that each of the partners is fully liable to the
entire extent of the debt. In law, each partner is the agent for the other. The
act of one partner binds the firm and the other partners.
Distinction between
Company and Partnership
1.
A Partnership firm is sum total of persons who have come together to share the
profits of the business carried on by them or any of them. It does not have a
separate legal entity. A Company is association of persons who have come
together for a specific purpose. The company has a separate legal entity as
soon as it is incorporated under law.
2. Liability of the partners is unlimited.
However, the liability of shareholders of a limited company is limited to the
extent of unpaid share or to the tune of the unpaid amount guaranteed by the
shareholder.
3.
Property of the firm belongs to the partners and they are collectively entitled
to it. In case of a company, the property belongs to the company and not to its
members.
4.
A partner cannot transfer his shares in the partnership firm without the consent
of all other partners. In case of a company, shares may be transferred without
the permission of the other members, in absence of any provision to the
contrary in the articles of association of the company.
5. There must be at least 2 members in order
to form a partnership firm. The minimum number of members necessary for a
public company is seven and two for a private company.
6.
On the death of any partner, the partnership is dissolved unless there is
provision to the contrary. On the death of the shareholder, the company'
existence does not get terminated.
