Carrying on any business activity, whether it is a trading or professional activity, should always be embarked upon after taking competent legal advice on the appropriate formal designation and status for the proposed venture.
It follows that compliance with the above is a paramount requirement for the relevant authorities to be able to issue licences for carrying on various activities, and engage in the trading and legal transactions relating thereto.
As a consequence of this, choosing the correct legal form of the proposed establishment is subject to many considerations which should be studied so that the establishment may conduct its business in the manner envisaged in its setting-up, thus maintaining the continuity which it derives from the stability of its legal status. Amongst these considerations, which should be observed in selecting the legal form of the firm or establishment, are the following:
- Compliance with the legislation regulating civil and commercial dealings and observing their provisions and rules, as there are certain types of trading companies which are not allowed to practise specific types of activity. For instance, limited liability companies are not allowed to engage in the business of insurance and money exchange. Also, there are certain activities that may not be practised except in certain legal forms: for example, firms specialising in legal consultancy and accounting services cannot function except through professional companies.
Consideration should be given to the amount of the invested capital which should be employed in practising the activity, which depends either on the personal capacity of the investor to provide the required capital, or his ability to legally raise funds from varying sources of finance. For projects whose execution necessitates the provision of huge funds, it is advisable to select the option of a Public Shareholding Company in order to ensure availability of the required capital.
- Scope of the firm’s activities and whether it is planning to carry on its activities on the local, regional or international level.
- Nationality of the investor; for a local investor may practise most types of business activity as a sole proprietor or through any of the legal forms of companies through entering into partnership with others. However if the investor is not a local, then he needs, in most cases, to have a local partner in order to be able to practise certain business activities, except for special cases where the law does not dictate such requirement.
These are in addition to other considerations which determine for the investor the legal form for practising his business, except for the few cases which the law stipulates must be carried on in a particular legal form.