In setting up a new seed enterprise the first step is to complete the necessary market research and prepare a business plan. Then it is essential to look at the legalities required when setting up your business.

Starting a business must not only take into account economic, financial and marketing factors. It must also consider the legal status of the business, in order to protect the owner's capital and investment. In most countries there are different types of legal structures of enterprises; these are usually defined in the Company Law. The condition under which a seed business manages and conducts its affairs, borrows money, and generates or disseminates financial information is determined by the legal status of the business. There are two major legal frameworks for private persons who form a business for profit: partnerships and companies.

A partnership law is based on contract and is only suitable for a relatively small number of persons who know and trust each other. Company law allows establishing companies, i.e., associations with a legal personality, distinct from that of their members.

Choosing the most suitable legal framework for a small seed enterprise depends on a number of factors, mainly:

·Amount of capital needed to start the business: Considering the investment in equipment and infrastructure, sources of finance must be available and secured. Financing the required working capital to start the business is another important issue to be considered.
·Financial risk involved: If a venture is risky spreading the chances for financial failure is required.

A 'one-person' business could be a 'sole trader' (i.e., self employed) or a 'limited company'. When several 'persons' are involved, it could be a 'partnership', 'limited company' or 'cooperative'.

Sole Trader

This is probably the most common form when a new business is started. The owner may trade under his own name or a business name, which usually does not have to be registered. In case a business name is used, the owner's name should appear on all letterheads, etc. The owner of the business solely holds all profits (and losses), and is fully responsible for the business. He may decide to employ people to work for him or to manage the business for him, but they will remain employees and he has final responsibility.

When starting the business, finance must be provided. If your own savings are not sufficient, you may borrow money. Banks and other financial institutions usually require detailed plans of the proposed business (Business Plan). If the business runs into financial problems, you will be personally responsible for paying the debts, even if this means selling your house, car, etc. A sole trader has very few legal requirements to fulfil. If the value of the taxable supplies (per annum) is over a certain sum, the business must be registered with the Tax Authorities (depending on tax laws of the country) and is legally required to maintain accurate records. To assure that the correct amount of tax is paid, proper accounting records must be kept. Generally, taxes are paid only on profit. The sole trader may well be interested in the amount of profit the business made in the year, but there is no legal requirement to produce a statement showing this.

Partnership

A partnership is when two or more people carrying out a business for profit. There is a limit on the number of partners, which should not exceed 20, but this depends on the legislation of the country. The partners are all owners of the business, and jointly make decisions on running the business. They may operate under a business name, which does not have to be registered. Depending on the legal requirements, the names of the partners may have to appear on the firm's stationery.

It may be easier for a partnership to raise the funds to start a business (sharing the investment). All partners will share any profit, and share any losses. Partners normally ask a solicitor (attorney at law) to draw up a legal agreement showing the proportions in which they share profit or loss and other matters.

If partners invest different amounts of capital, they can choose to either: (1) apportion the profits in the same ratio as the amounts invested, or (2) to allow time, say six months, for the partners to equalize their investments. In both cases, voting rights should be equal to the amount of individual investment.

Partners are personally responsible for the debts of the business, but if one partner disappears, the remaining partner(s) is/are liable for all the debts. Requirements listed above on tax and financial statements for sole traders are similar for partnerships. In addition, your country may have a Partnership Act, which lays down the following:

·  Proper books of account must be kept
·    Capital must be distinguished from profits and losses
·   A record must be kept of profit shares and withdrawals
·    Partners are bound to render true accounts and full information of all things affecting the business to a partner or his legal representative

Limited Liability Company

Unlike a sole trader, a limited liability company is a legal entity in its own right. The most important feature is that the company only is held responsible for the debts incurred in trading. If the company is unable to pay its debts, then the company can be sued in its own name. The owners (shareholders) are responsible for the amount of money they have invested in the company, but their liability is limited to that amount. Their personal assets are not subject to takeover. Therefore, a number of legal requirements are facing a limited company.

Its shareholders and directors may change, but the company will continue to exist until legally disbanded. If the company is unable to pay its debts, then it may go into liquidation. Countries have many laws to regulate them. No one should set up a company without understanding the implications and getting professional advice.

A company must have at least one director and a company secretary who could be a second director, another shareholder or accountant or solicitor. In forming a company, certain documents (articles of association, memorandum of association) and the name of the business must be registered with the Registrar of Companies. In addition, every year a limited company must send certain financial information to all shareholders and to the Registrar. As any person may consult the files of the Registrar, the information submitted by the company become public documents.

Companies limited by shares are the most important form of business organization, not because of their number, but because of their size. Companies whose shares can be offered to the public are known as public limited companies (plc) and these words must appear after the name. There are also private limited companies whose shares may not be offered to the public, and in most cases the founders and owners hold all shares (limited must appear after the name).

A public company can offer its shares to the public through the stock exchange; a private company cannot do this. Legal reporting requirements for limited companies are complex; these are contained in the Company's Act. These vary, depending on the type of company and its size, but general provisions are:

1. Accounting records must be kept to show and explain the company's transactions
2. At the end of each financial year, accounts must be prepared which comprise: (a) profit and loss account, (b) balance sheet, (c) auditor's report, and (d) director's report
These accounts are given to each shareholder, debenture holder, and any other person entitled to attend the Annual General Meeting. These should also be filed with the Registrar of Companies. In this way they become public documents; for a small fee, anyone can obtain a copy of them.

Furthermore, there are certain accounting standards (national and international), which are guidelines issued by the professional accounting body in your country. These standards do not have the force of law, but are guidelines as to how certain accounting matters should be dealt with by limited companies.

Cooperative

A cooperative or 'worker's cooperative' is a specialized form of limited company. Cooperatives are run like any other small business with managers or supervisors, the difference being that the business is owned by everyone who works in it and decisions are made democratically. Laws and regulations apply to a cooperative are the same as for a limited company. Peter Witthaut, c/o German Development Cooperation (GTZ), P. O. Box 56106 Lagos, Nigeria, Fax: ++871-761625841; Email: gtz-klfpp@t-online.