Can you think of the biggest reasons why you should register your business? You need to read this article carefully.
In Africa, up to 70 percent of people who regard themselves as ‘entrepreneurs’ do not own a registered business.
How can anyone say they own a business when it doesn’t really and legally exist?
For some of these people, it’s just plain ignorance; they don’t know or understand the importance of a getting a business registered. The others, who aren’t totally ignorant, just choose to avoid the upfront cost of registration when they start their business.
If you have been running an unregistered business for sometime, this article will give you five reasons to regret your action/ignorance.
However, if you plan to start a business soon, the reasons in this article will prevent you from missing out on the benefits of a legally registered business.
I have taken the time to do quite some research for this article and will present the the legal concepts in a very simple manner with real life examples and scenarios you can relate with.
By the time you’re done reading this article, you should know exactly what you need to do to register your business.
What Is A Registered Business?
The best way to describe a registered business is to tell you a short story.
Fred is an entrepreneur who makes very beautiful shoes for men and women with the best quality leather. This has been his line of work for seven years now and thousands of people love his shoes.
Infact, his shoes have become so popular that people commonly refer to it as ‘Fred shoes’. People actually go to the market and ask for ‘Fred shoes’. Most of his customers are so loyal that they will not wear any other brand of shoes (local or foreign) except for Fred’s shoes.
Just last year, one smart entrepreneur (let’s call him John) caught a bright idea and decided to register a company and named it “Fred Shoes Company”.
It cost him time, effort and money but John went through the hassle to register his new company. Guess what? His new company makes shoes too. These shoes are also of high quality but they’re not as good as the popular Fred shoes.
But the interesting thing is, John’s company’s shoes are labeled ‘Fred Shoes’.
As you may have guessed, Fred finds out that John’s company is selling its shoes with a ‘Fred Shoes’ label. What can he do?
If he does nothing, these new shoes that carry his name will confuse his customers and he could lose sales. So he decides to sue John’s company “Fred Shoes Company”.
Who do you think will triumph when this matter goes to court?
The facts of this case are quite simple:
One person (John) owns and runs a business that is legally registered and recognized by law. The other person (Fred), although running a very successful but unregistered business, has become a victim of his own mistake. He owns and has been operating a business that doesn’t legally exist.
This is a sad example of the kind of unfortunate things that could happen when a business is not properly set up and registered.
It is often tempting to postpone or think that business registration can wait or is not really important.
The truth is, you may be building something that could become very big and popular in the future. However, if you don’t do something as basic as registering your business, all your hardwork could easily be wasted, or worse, taken over by somebody else.
In summary, this story teaches us (with a hard lesson) exactly what a registered business is. It is one that legally exists and is recognized by law. It is one that enjoys certain rights, benefits and privileges that an unregistered business cannot enjoy.
As a result of the things I explained earlier, some of these reasons should be very obvious to you. Here are the reasons you should register your business now!
1. It gives you a unique identity (and protects it too)
There is a certain pride that comes with the identity of your own business.
It’s no longer that big idea you’ve had in your head all these years. It’s now a real thing that legally exists; with its own name and address.
Some people choose their business names on emotional grounds (like their father’s, mother’s, wife’s or child’s name or even their own name). Some other people prefer to choose names that inspire while some other will go with names they want to protray good qualities about the business.
Whatever name you choose, and for whatever reason, is totally up to you.
Once you’re ready to register your business, the first thing the Business Registration Office does is to check that no other business already exists with the same name. Under law, no two businesses should have the same name to avoid confusing the public.
This search could take a few minutes or several days, depending on your country.
Once it is confirmed that the name you’ve chosen for your dream business is available (that is, nobody else is already using it), you will be allowed to go ahead with the rest of the business registration processes.
And unless your business goes bankrupt and is formally dissolved, no other person can use or register the same name ever.
Once registered with the name you chose for it, you’re legally free to go ahead and design a logo, create business cards and letterheads, and do anything you want with the name.
Can you magine your business card with an inspiring logo and the name of your business boldly written across it and your name as CEO? That’s truly unique and inspiring.
2. It protects you from personal liability
This is arguably the biggest reason why many people have to register their business.
Without the legal protection of limited liability, you could lose your business and personal property if something goes wrong (say somebody sues you to court for heavy damages).
Imagine you started a trucking and haulage business with two trucks that carry heavy goods for customers from the sea port to the inner cities.
Unfortunately, one day, one of your trucks had a fatal accident that involved a collision and fire that killed five people.
Although your business has suffered a hit (as a result of the lost truck), that appears to be the least of your problems.
Your biggest problem is the case brought against you in court by the relatives of the people killed in that accident. They are suing you for damages of up to $250,000. Even if you sold the other remaining truck, it wouldn’t still be enough to settle such a high sum.
How much money you lose in this scenario really depends on the nature of your business.
If your business is registered as a limited liability entity, the worst that could happen is that ONLY your business will be responsible for paying the damages because it is a separate entity from you.
However, if you were running an unregistered business, you may not be entirely safe. Why? Because your personal stuff (house, cars, money in the bank etc) maybe used to settle any outstanding debts the business cannot settle.
Don’t forget, not all company types can offer this protection. Only Limited Liability type companies can do this. Sole-proprietorships and partnerships (except Limited Liability Partnerships) cannot provide protection from personal liability.
3. It makes you look serious and attracts more customers
In today’s modern world, most customers, especially corporate customers, expect a serious and responsible business to be registered.
In fact, most companies will not do business with an unregistered business. In certain cases, it’s against the law for regulatory and tax reasons.
Think about it for a moment:If your business is not registered, how can you issue receipts to customers for products you sell or services delivered?
And who exactly pays for something these days without demanding a receipt? Unless your plan for your business is to become and remain a petty trading business that sells stuff off street corners, you just have to register it to attract more discerning customers.
Nobody says you can’t survive with a business that isn’t registered. The likely outcome is that you may not grow and will probably remain small for a long time.
4. It’s easier to get bank credit and investment from investors
For banks, there are basically two categories of loans; Personal and Business loans. They’re both totally different and one cannot be used to represent the other.
As a result, most banks will gladly lend you money to buy a new car or house but none will give you money to fund a business that isn’t registered. To qualify for a business loan, the Number 1 and non-negotiable requirement is that your business must be registered. Period!
For investors, it’s the same thing. Investors are interested in giving you money for a share of your business, and not to finance your personal lifestyle.
If there’s no registered business, what exactly will you be giving them a share of?
Investors want to know that your business is organized, exists legally and is separate from your personal life and finances.
No investor would take you seriously if you’re asking for investment but you don’t already have your business registered. To them, it’s a sign of unseriousness and a lack of professionalism. You don’t want anybody to have that impression of you.
5. It’s important for continuity sake
Nestlé, Cadbury, Shell and Toyota. Do these names ring a bell?
Of course they do.
These names are big multi-billion dollar businesses that have existed for decades. In fact, most of the people who formed these companies have been dead for a long time.
Nevertheless, these businesses, which were quite small when they started many years ago, remain very big and successful today.
It’s called continuity; human beings live and die but businesses have the ability to last forever as they are transferred from one generation to another.
In Africa, it’s hard to come across businesses that outlast their founders. Just a few have.
A registered business is an asset (like a house, car and other properties) that can be passed down (as an inheritance) or sold by its owners to a new generation of people who can continue to own and run the business.
Registering your business will help you achieve your dreams of continuity.