By Phillip Chichoni
A young entrepreneur wanted to start a small business with great urgency. He came to me to enquire about registering a company for the purpose of the business. I told him the price and he exclaimed: “Excuse me Mr. Chichoni, I don’t have that kind of money. I am just a school leaver and all the money I had saved I used it to the products for the business. Can I not start trading before registering the company?”
“Yes you can,” I replied. “However, you will be operating informally and most business to business customers prefer to deal with formally registered organizations. Have you considered a cheaper way of incorporating, in the form of a PBC?”
“Oh, I have heard about that one. But I was told it is not a real company,” he replied.
Many people wonder if a PBC, or a Private Business Corporation, is as good as a company. Because of lack of information about it, even some bank staff don’t know much about the PBC. An employee at one of the outlying CBZ Bank branches surprised me when she asked for a memorandum and articles of association when one of my clients wanted to open a business bank account in the name of his newly registered PBC.
Well, here are some facts about a PBC, in relationship to a company.
1) The PBC was born out of the need for a simplified legal framework for small business enterprises to avoid legal complexities associated with the Companies Act. It is the equivalent of the South African Closed Corporation.
2) The enabling legislation is the Private Business Corporations Act (Chapter 24:11) which came into effect on the 5th of May 1997 through Statutory Instrument 105/1997.
3) A PBC is a corporate entity with limited liability and perpetual succession, just like a company.
4) It requires less paperwork than a company as it does not require the drawing of Memoranda and Articles of Association. These are replaced by an “incorporation statement”.
5) It is simpler to use as it does not require the appointment of directors or the holding of formal meetings. Its regulation is not as rigid as that of a company.
6) It is cheaper to register and to maintain, compared to a company.
7) It can convert to a company using the same name as before.
Here is a comparative analysis of the Private Company and the Private Business Corporation as business entities.
Private Company | Private Business Corporation |
Juristic Person | Juristic Person |
Enjoys Perpetual Succession | Enjoys Perpetual Succession |
Can Have A Maximum Of 50 Members | Can Have A Maximum Of 20 Members |
Companies Can Be Shareholders | Companies Cannot Hold A Member’s Interest |
Comprised Of Directors And Shareholders | Comprised Of Members |
Has A Memorandum | Has A Founding Statement |
Registered Articles Of Association | Articles Of Association Are Not Required |
Compulsory Annual Return To Be Lodged | No Annual Return To Be Lodged |
Has Share Capital | Has Member’s Contributions |
Has An Auditor | Has An Accounting Officer |
Convenes An Annual General Meeting | Annual General Meeting Not Required |
Certificate Of Incorporation | Certificate Of Incorporation |
Members Hold Shares | Members Hold Member’s Interest |
Can Acquire Its Own Shares Under Certain Circumstances | Can Purchase A Member’s Interest |
Directors Are Responsible For The Day To Day Management Of The Company | Members Are Responsible For The Day To Day Management Of The PBC |
Register Of Members | No Register Of Members |
Limited Liability | Limited Liability |
Audited Financial Statements | No Financial Statements needed |
Prohibition On A Company To Provide Financial Assistance For The Acquisition Of Its Own Shares | No Prohibition On A PBC To Provide Financial Assistance For The Acquisition Of A Member’s Interest |
This is an extract from my new book, Startup Smart, Lean and Fast, which is a must have for those who intend to start and succeed in business in Zimbabwe. The book will be launched on March 13, 2014. To read more extracts and get updates on the upcoming book, visit http://smebusinesslink.com and go the Startup Smart Lean and Fast page.
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