6 Advantages of Registering a Business

  • A file image of traders at Gikomba market.
    A file image of traders at Gikomba market.
  • Starting a business and running it successfully is always the dream of every member of the society. The financial and personal freedom that comes with it is unmatched. 

    However, most people prefer to run their businesses without ever registering them, either out of ignorance or as a way of evading payment of taxes.

    The consequences of failing to register a business are always dire in most cases. Bernard Ngugi, a financial consultant, opines that the benefits derived from a registered business are always something to go for.

    Kenyans.co.ke has compiled six benefits business owners enjoy by registering their ventures.

    Kenyan workers at an airplane hangar.

    Equity financing

    Equity financing involves selling company shares to potential shareholders. The money raised through equity financing does not have to be repaid. For business owners with good business models, having a registered venture is necessary when raising money for expansion. Investors insist on knowing key details of the company before putting in their money.

    “Once a business owner sells a stake of their venture, they should be prepared to handle some pressure from the shareholders," noted Ngugi.

    "Shareholders require that a business is consistent in paying dividends and keeps updated books. Others may want to cash out their shareholding if the business is not performing."

    Debt financing

    When dealing with financial institution, they are very strict when offering loans to businesses. They expect businesses to show their registrations details before they can be given the loans.

    Debt financing offers the same benefit as equity financing and in most cases helps in the expansion of the business.

    Organized succession

    It is common for unregistered businesses to be highly disorganized when finding the rightful successor. Registered businesses can utilize legal entities to offer third parties a decision-making role in choosing the most qualified successor.

    “There are third party contracts that will offer individuals such as the directors, shareholders, and employees the oversight role to make the best decision for the business. This will ensure the business's lifespan and legacy lives on even after shareholders or directors leave," stated Ngugi.

    Legal protection

    When a business entity is registered, the name of the venture is protected and the owner can utilize intellectual property rights to protect it from being used by another business entity.

    “A registered business is protected from unauthorized use hence protecting the corporate image. Registered businesses can also have a separate legal entity where your business has rights and privileges like owning property. It is illegal for an unregistered company to own property. Registered companies protect the private assets from legal and financial risk,” Ngugi elaborated.

    Public perception and brand credibility 

    Registering your business offers your venture a credible brand that your client and potential customers can rely on. It is easier to be approached by other business entities that want to merge businesses or acquire some shares in your venture.

    “For companies that may want to be listed in the Nairobi Securities Exchange (NSE), they must be registered. The rules by the Capital Markets Authority (CMA) are strict and non-negotiable, if there are individuals who want invest in your business, your must register it."

    Reputation and prestige

    There is a sense of confidence that clients and employees have if the business is registered. When your business is registered, it shows the commitment to stick around for years.

    Limited liability

    When your business is registered, it helps limit the extent of your liability. In the unfortunate event that the business defaults on its mandate such as repayment of a loan, a business owner can leverage on the shares he has in the company or forfeit the assets of the business to settle the defaulted debt.

    The nature of registered business avoids extended liability to family and private assets unless you consented to use them as collateral.

    Trade CS Betty Maina addresses journalist at a press conference in 2020