Sole Proprietorship

Definition: Sole Proprietorship (also known as ‘Business Name’) is a trading business owned by a single person.

At a glance:

The steps you are legally required to follow are outlined in this section including:
STEP ONE

How to apply for a name for your Business.

STEP TWO

How to register for Tax with the Kenya Revenue Authority (KRA)

STEP THREE

How to register your Business Name

STEP FOUR

How to apply for a Business Permit

STEP FIVE

How to register with the National Social Security Fund

STEP SIX

How to register with the National Hospital Insurance Fund (NHIF)

PROS

Advantages of an Unlimited Sole Proprietorship

FEWER FORMALITIES
  • A Sole Proprietorship is quicker to set up & register.
  • The registration procedure is limited & costs less.
  • Formal compliance requirements are minimal.
EASY TO FORM & TO CLOSE
  • A Sole Proprietorship requires a small amount of capital to set up.
  • There are very few legal formalities other than the local authority (County) license and/or other licenses, e.g. from health authorities (hygiene compliances).
CONTROL
  • All profits go to the Sole Proprietor (no share of profit required).
  • The Sole Proprietor has absolute control and privacy regarding the business operation.
  • It is simple to change the legal structure later if circumstances change.
    i.e. It is easy to wind up the Sole Proprietorship and form an LLC or other business type.

CONS

Risks of an Unlimited Sole Proprietorship

UNLIMITED LIABILITY
  • The Sole Proprietor is liable for all debts incurred by the business.
  • The owner’s personal assets are not protected, even when the debt is incurred by the business.
TAX DISADVANTAGE
  • A Sole Proprietorship attracts more tax-deductible costs and allowance, redeemable against profits.
  • A Sole Proprietorship attracts income tax as opposed to corporate tax.
PROTECTION OF BUSINESS NAME
  • The only protection available for a Sole Proprietor is trademark legislation which is costly.
LIMITED CAPITAL
  • A Sole Proprietor has to personally raise sufficient capital to start the business.
  • Due to personal liability (debt, legal, etc.) Sole Proprietors can be limited in their capacity to raise capital.
  • Insufficient capital limits future expansion.
LIMITED SIZE
  • A Sole Proprietorship reaches a growth & expansion limit
    i.e. As the business grows it can become increasingly difficult for a single person to supervise and manage all aspects of trading as well as source new business

KENYA BUSINESS GUIDE

The Kenya Business Guide (KBG) is a think-tank that seeks to support the improvement and strengthening of the business environment in Kenya by providing access to information on key features of both the private and public sector prerequisites in the effective functioning of business. The KBG works in the intersection of the private and public sectors developing curated and value-added information to assist leaders in making more effective decisions.

Kenya Business Guide 2018 © All Rights Reserved