Starting and running a business comes with financial and personal freedom that is unmatched. This has made many people admire to venture into the sector, irrespective of one’s original life ambitions and career.
However, many businesses are operating unofficially, with no registration, no tax payment, no legal ownership documents, and so on. Many people want to enjoy the benefits of being entrepreneurs, but only a few are willing to suffer the pain of taxation and other legal associated costs for business operation.
The benefits that come along with a registered business is something you should highly prioritise, compared to risks associated with an unregistered one.
The few crucial reasons for you to register your business have been discussed in this article.
A registered business entity’s name is protected legally, together with business properties. The business name and properties cannot be used by someone else, or another business elsewhere.
“A registered business is protected from unauthorised use hence protecting the corporate image. Registered businesses can also have a separate legal entity where your business has rights and privileges like owning property. It is illegal for an unregistered company to own property. Registered companies protect the private assets from legal and financial risk,” said Ngugi, a financial analyst.
Selling company shares to potential shareholders falls under Equity financing.
The money raised through equity financing does not have to be repaid. It reaches a point where business expansion is necessary, which obviously needs more capital raised. Investors will need to have key details of the business/company before financing it.
“Once a business owner sells a stake of their venture, they should be prepared to handle some pressure from the shareholders,” noted Ngugi.
“Shareholders require that a business is consistent in paying dividends and keeps updated books. Others may want to cash out their shareholding if the business is not performing.”
Just like Equity financing, Debt financing offers the same benefits that propel business expansion.
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Financial institutions that offer loans to businesses are very strict in official/legal business documents. They expect businesses to show their registrations details before offering financial services like loans.
Brand Credibility and Public Perception
A registered business presents a credible brand that your potential customers and other clients can rely on.
Other business entities that want to merge businesses or acquire some shares in your venture can easily do so.
“For companies that may want to be listed in the Nairobi Securities Exchange (NSE), they must be registered. The rules by the Capital Markets Authority (CMA) are strict and non-negotiable, if there are individuals who want to invest in your business, you must register it” stated Ngugi
Legal/Rightful succession processs
In most cases, unregistered businesses experience difficulties in finding a successor. Some are closed down due to wrangles, while others undergo natural death.
Registered businesses can utilize legal entities to offer third parties a decision-making role in choosing the most suitable successor.
“There are third party contracts that will offer individuals such as the directors, shareholders, and employees the oversight role to make the best decision for the business. This will ensure the business’s lifespan and legacy lives on even after shareholders or directors leave,” said Ngugi.
Business reputation and prestige
Registered business entity instils confidence in clients and employees. A registered business shows the commitment to stick around for years.
It also shows that the entity is legally operating, hence offering legally acceptable services or goods.