Registration of Sole Proprietorship

Registration of Sole Proprietorship
Registration of Sole Proprietorship

A Sole Proprietorship is considered the most straightforward and cost-effective form of business entity as it offers a hassle-free setup at an affordable price. In this article, we delve into the intricacies of Sole Proprietorships, elucidating their features, advantages, disadvantages, and the registration requirements.

A Sole Proprietorship is considered the most straightforward and cost-effective form of business entity as it offers a hassle-free setup at an affordable price. Pursuant to Section 4 of the Registration of Business Names Act, it is a legal requirement for all businesses operating in Kenya to be registered. 

In this article, we delve into the intricacies of Sole Proprietorships, elucidating their features, advantages, disadvantages, and the registration requirements. 

Features of Sole Proprietorships 

1. Registration and compliance  

True to the name, sole proprietorships are owned by one individual/company. The registration process is easy and inexpensive as opposed to registration of limited entities like companies and LLPs which require substantial documentation upon registration and annual compliance requirements.    

2. Liability  

Sole Proprietorships are unincorporated entities meaning there is no legal separation between the owner and the business.  Essentially, the Owner and the Business are one and the same thing.  

3. Tax  

Sole Proprietorships are taxed on the Owner’s income and not on the Business’s income.   

Advantages  

  1. The registration cost is cheap and therefore affordable for Micro Small and Medium Enterprises with limited capital. 
  2. Sole Proprietors enjoy complete autonomy over their business decisions. They are the sole decision-makers, and are responsible for the business's profits and losses, allowing for agility and swift decision-making. 
  3. Tax returns are simple as the Owner pays tax on their personal income and not as the business.  

Disadvantages  

  1. Sole Proprietors have limited options for raising capital since they cannot sell shares or interests in their business. This may limit business growth. 
  2. As there is no legal separation between the business and the Owner, personal property can be used to pay off business debts.  
  3. As there is no legal separation between the business and the Owner, there is lack of continuity in the even the owner passes away. This aspect can pose challenges for the business’s sustainability. 

Requirements for registration  

Applications are made on the business registration portal and the following are the requirements:  

  • 3 proposed names 
  • Name and Address of Proprietor 
  • KRA Pin of Proprietor 
  • Nature of Business of the Proprietor together with a professional certificate (if any) 
  • Signed BN/1 form  

How we can help 

At CM SME Club, we specialize in offering legal advice and guiding businesses in selecting the most suitable business entity for their needs. We are here to assist you in the seamless incorporation of your business. Contact us via email or call +254 745 342 125 for support in your entrepreneurial journey and let us help you propel your venture to success. 

Published on Aug. 22, 2024, 1:10 p.m.