Forms of Business Ownership
This domain tests whether you can compare ownership forms on legal personality, liability, continuity, capital, control and formalities, then recommend one for a given situation. Answers must use the correct Malawian registration language, not vague descriptions.
Forms and their rules
- Sole trader: one owner, no separate legal personality, unlimited liability, cheap and quick to start, capital limited to personal savings and loans.
- Partnership: usually 2–20 partners; governed by a partnership agreement; unlimited liability unless registered as a limited liability partnership; brings shared capital and skills but risks disputes.
- Private limited company (Ltd): separate legal personality, limited liability, 1–50 shareholders, shares not offered to the public, registered with the Registrar General under the Companies Act.
- Public limited company (Plc): at least two shareholders, may offer shares to the public and list on the Malawi Stock Exchange; must publish accounts.
- Others: parastatals (state-owned), co-operatives (member-owned, one member one vote), franchises and joint ventures.
Worked example
Three friends each contribute K2 million to run a maize mill. They expect to borrow from a bank and later admit more investors, but not sell shares to the public. Best form: a private limited company. Reasoning: separate legal personality protects personal property from business debts, the company can own property and sue or be sued in its own name, it enjoys perpetual succession, and shares can be transferred with directors' approval. A sole trader or ordinary partnership would expose personal assets; a Plc is unnecessary and costly when shares are not offered publicly.
Traps that cost marks
- Claiming a partnership always has limited liability.
- Confusing Ltd (shares restricted) with Plc (shares offered to the public).
- Forgetting perpetual succession, which outlives members.
- Saying a partnership is illegal without a written agreement - it is unwise, not unlawful.