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Benefits of a partnership vs a limited company in kenya
In Kenya, the decision between forming a partnership and establishing a limited company is crucial for entrepreneurs and business owners. This choice impacts various aspects of business operation, including liability, taxation, and governance. The legal framework governing partnerships is primarily found in the Partnership Act, while limited companies are regulated under the Companies Act. This analysis will delve into the benefits of each entity, providing a comprehensive understanding to aid in making an informed decision.
Table of Contents
Introduction to Partnerships
Benefits of a Partnership
2.1 Flexibility in Management
2.2 Taxation Advantages
2.3 Personalized Service and Customer Relations
2.4 Simplified Decision-Making Process
Introduction to Limited Companies
Benefits of a Limited Company
4.1 Limited Liability
4.2 Perpetual Succession
4.3 Raising Capital
4.4 Credibility and Public Perception
Conclusion
1. Introduction to Partnerships
A partnership in Kenya is defined under the Partnership Act as a business entity formed by a minimum of two and a maximum of 20 persons (50 for professional partnerships), who agree to contribute capital and share profits and losses. Partnerships are relatively easy to establish and are governed by a partnership agreement.
2. Benefits of a Partnership
2.1 Flexibility in Management
Partnerships offer a high degree of flexibility in management and operations. Partners can directly manage the business and make decisions without the need for formal meetings or resolutions.
2.2 Taxation Advantages
Partnerships themselves are not subject to income tax. Instead, each partner is taxed on their share of the profits as personal income, which can be advantageous, especially for smaller businesses.
2.3 Personalized Service and Customer Relations
Due to their typically smaller size, partnerships can offer more personalized service and maintain closer relationships with customers.
2.4 Simplified Decision-Making Process
With fewer owners, partnerships can benefit from a more streamlined decision-making process, allowing for quicker responses to business opportunities or challenges.
3. Introduction to Limited Companies
Limited companies, governed by the Companies Act, are legal entities separate from their owners. Shareholders’ liability is limited to the amount unpaid on their shares. Limited companies can be either private or public, with the former having restrictions on the transfer of shares and a limit on the number of shareholders.
4. Benefits of a Limited Company
4.1 Limited Liability
The most significant advantage of a limited company is the limited liability protection for its shareholders. This means that in the event of business failure, shareholders are only liable for the amount they invested in the company.
4.2 Perpetual Succession
A limited company enjoys perpetual succession, meaning it continues to exist even if the shareholders change. This provides stability and can make it easier to secure business loans or investments.
4.3 Raising Capital
Limited companies can raise capital more easily than partnerships by issuing shares. This can be particularly beneficial for businesses looking to expand.
4.4 Credibility and Public Perception
Operating as a limited company can enhance a business’s credibility and public perception. This can lead to increased trust from customers, suppliers, and financial institutions.
5. Conclusion
Choosing between a partnership and a limited company in Kenya depends on various factors, including the nature of the business, the level of risk involved, and the long-term goals of the owners. Partnerships offer flexibility and personal control but come with unlimited liability and potential for personal tax advantages. Limited companies provide limited liability, easier capital raising, and enhanced credibility but require more formal governance and are subject to corporate taxation. Entrepreneurs should carefully consider these benefits in light of their specific business needs and objectives.
Answered by mwakili.com