Your tech startup is a real business – here’s why you need to register it

   

Registering a company in Zimbabwe is still a pain. Everyone who’s walked down that path will share their own stories about the process.

Sure, there are options that are in the works like the online service that the government is tinkering with but it is not yet fully functional so there are still a lot of “offline” frustrations that come with this.

As someone who firmly belives in technology solving problems I keep wishing someone would do what name.co.zw did to domain names but with registering companies instead; if that’s even possible. It would help fledgling entrepreneurs including tech startups.

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What’s the big deal?

But why would tech startups want to register their businesses? Why bother anyway? After all, they are working on more important issues like product/market fit and improving their technology, right?

Not quite. If you want to operate as a proper business (which is what a tech startup should be, it’s not a science project) company registration is important.

One of the things that you quickly learn as soon as you try to formalize your little business is that running a business requires a lot of paperwork. Try opening a bank account and you will be asked for all sorts of documentation and forms that will make your head reel.

Insults like CR6, CR14, Memorandum and Articles of Association, Certificate of Incorporation and Tax clearance are casually hurled at you. This is after application forms the size of a Game of Thrones novel have been tossed your way.

Invariably most banks assume that your business is a company. For some reason trying to open a bank account as a sole trader business is even more complicated.

While they told you during high school Commerce that running a sole trader business was easy none of those people ever had to deal with the City of Harare. You should try to register a tech startup that does nothing but to provide services and is not a tuck shop with them.

It will still cost you $200 plus to register a company, there has to be two of you because an individual cannot register a company as well as other onerous requirements. Most company owners unwittingly violate the many provisions in the Company’s Act.

Register your business wisely

Upon noting my despair a friend reminded me of PBCs. Known as a Public Business Corporations they are administered under the Private Business Corporation Act of 1993. Some of the features of a PBC are:

  • A cross between partnerships and limited companies.
  • A legal entity or body corporate which can act in its own name much like a person can.
  • Formed by a 1 to 20 members.
  • Owners are known as members instead of shareholders
  • Its name ends with the words Private Business Corporation or the capitalised abbreviation PBC
  • Every member is an agent of the PBC.
  • All members are directors and choose a chairman to run the affairs of the business.
  • Every member takes part in the managing the affairs of the business
  • Any disputes about the affairs of the business are settled by a majority decision
  • Each member has a vote equivalent to the percentage of capital they contributed.
  • Their affairs are private
  • Each member contributes capital in the form of cash, assets or services to the PBC.

Some these features mean a PBC is a perfect fit for startups. In any case, some of the features listed above can be modified using bylaws. In addition to some of the clear advantages above here are some reasons why you might want to consider registering your sole trader business as a PBC:

Why you should register your start up as a PBC

  • Members have limited liability.
  • There is continuity even if one of the members leaves or dies.
  • Any contract entered into by one member is binding on all members.
  • Can be converted into a company at a later date if you so wish
  • They are cheaper to form and will cost you less than $30 if you do it yourself or around $50 if you hire consultants/agents
  • You can  open a bank account or apply for services like PayNow
  • There are no limitations to revenue
  • You capital amount is unlimited and is does not affect your registration fees.
  • There is no need for Audits
  • You don’t have to tell the Registrar how much you have made each year. With a company you need to tell the Registrar how much money you are making every year or something like that. If you haven’t been doing that you have been breaking the law.
  • Less papers e.g no CR-somethings, Memorandums of this and that or registers of shareholders just the certificate of incorporation

Why you might not want to do it

  • Only individuals acting in their own right can be members of a PBC. A company, partnership etc cannot own a PBC
  • If you were convicted of a crime you cannot form/be a member of a PBC
  • You have to be above 21 years old (may be the cut and pasted this Act from the US or something)
  • Decisions of members are binding on all members so you might want to choose your members carefully. This is true with partnerships (whether there is a verbal/written agreement or not) anyway so this is not a deal breaker.
  • Some people (ignorant bank clerks for example) might not know what the heck you are talking about. In which case go to another branch or simply go to the manager which should fix your problem.

A PBC is an affordable way to operate as a Limited Liability business. While the words PBC might be a challenge to some you should remember that not all countries use the words PVT LTD anyway. In the US the words LLC are preferred, in South Africa they prefer Pty Ltd  and in the UK there are PLCs, Ltd, Ultd etc.

If your tech startup is not yet a company you should really consider the PBC route.

Image credit: youthvillage.co.za


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