Starting a business in Jamaica is an exciting venture but before you can hit the ground running, you must make one of the most important legal decisions for your business: choosing the right corporate structure. There are many options available, ranging from sole proprietorships and partnerships to limited liability companies. Each structure carries its own set of advantages, obligations, and limitations.

Sole Proprietorship

A sole proprietorship is owned by one individual. There is no legal separation between the person and the business. It operates under the individual’s own name or a business name registered at the Companies Office of Jamaica. The owner’s liability to the business is personal and unlimited ie a sole trader’s personal assets may be at risk due to the business’s debt.

Partnerships

If you are looking to combine resources and enter business with a group of friends or like-minded colleagues to achieve a common purpose of profit, a partnership may be the choice for you. This structure allows you to share responsibilities, decision-making and profits but also the risks. The partnership is not distinct from its partners, meaning debts and obligations fall on the partners personally. Partnerships can be in two forms:

i. an unlimited liability partnership, where all partners share equally in profits and the liabilities; or

ii. a limited liability partnership which generally offers greater protection, limiting each partner’s liability to their investment in the partnership.

Both forms require a partnership agreement which operates as its constitution, binding the partners to its terms. This structure is commonly used by law firms, accounting practices and small joint ventures.

Limited Liability Companies

For those who want to separate their personal assets from those of the company, forming a limited liability company may be the best suited option. A company is a separate legal entity from its shareholders. The company can also sue and be sued in its own name. The benefits of incorporating a limited liability company are further discussed in my previous article “From Hobby to an Established Company: The Benefits of Incorporation”.

How to Choose?

When trying to decide which structure is right for you, several factors should be considered:

1. Control & Decision Making: Sole proprietorships allow the business owner to make all decisions independently without consulting anyone. Partnerships, however, involve shared decision making between partners, similar to the role of the board of directors of a limited liability company.

2. Business Continuity: Limited liability companies have perpetual succession, therefore, the business continues, regardless of a change of ownership, while sole proprietorships do not. Without the owner (eg as a result of bankruptcy or death), a sole proprietorship will cease to exist. Depending on the terms of the partnership agreement, a partnership may have perpetual succession or may end upon the death of a partner.

3. Regulatory/Compliance Requirements: A limited liability company has more regulatory/compliance requirements than a sole proprietorship and requires more disclosure. Eg companies are required to declare beneficial ownership of the company to the Companies Office while sole traders register their business name at the Companies Office and renew the registration every three years, with no filings in between.

4. Financing Options: Financial institutions, investors and business partners may be more inclined to work with incorporated entities such as a limited liability company rather than a sole proprietorship. This company structure ring fences the investment so that it is not mingled with the individual’s personal assets.

5. Size of Business: The intended size and scope of your business play a crucial role in selecting a corporate structure. Some corporate structures are better suited for large-scale operations, while others are more appropriate for smaller ventures. Limited liability companies are commonly used for larger businesses.

It is important to choose a structure that aligns with your growth and operational needs. Ultimately, the best corporate structure is one that provides the flexibility and protection you need to achieve your business goals.

Rachel Poole is an Associate in the Commercial Department at Myers, Fletcher and Gordon. She may be contacted at rachel.poole@mfg.com.jm or through the firm’s website www.myersfletcher.com. This article is for general information purposes only and does not constitute legal advice.