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Is a PBC as good as a Company?

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By Phillip Chichoni

Harare (2)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?”BlueOneGIF File

“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.ABS Animation File2014

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

  

 

Phillip Chichoni

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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