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Business Formalization
Formalization can be understood to include everything we do to ensure that our business is compliant and in line with the regulations of the country where we operate. Even if a business is registered, one cannot say that it is really formalized. In addition to registering the business (registration or declaration, as the case may be), an entrepreneur must therefore identify and comply with all other obligations, including employee welfare, depending on the size and activities of their business.
Formalizing a business can provide a number of benefits, including increased credibility, access to financing, and protection from personal liability. It can also help to ensure that the business is compliant with all applicable laws and regulations.
The steps involved in formalizing a business vary depending on the type of business and the jurisdiction in which it is located. Generally, the process involves registering the business with the government, obtaining the necessary licenses and permits, setting up the necessary legal and financial structures, and filing the necessary paperwork.
The documents required to formalize a business vary depending on the type of business and the jurisdiction in which it is located. Generally, the documents required include a business plan, articles of incorporation, a tax identification number, and any other documents required by the applicable laws and regulations.
The costs associated with formalizing a business vary depending on the type of business and the jurisdiction in which it is located. Generally, the costs include registration fees, licensing fees, and any other fees required by the applicable laws and regulations.
Tax Registration
Tax registration is one of the important steps in the process of formalizing your business.
What is tax registration?
In simple terms, tax registration means declaring your legal existence to the local tax authorities. It also means that you provide information that identifies your business as an economic unit operating in the locality and ready to contribute to local economic development.
Why is it advantageous to comply with tax regulations?
Small informal businesses that are considering formalizing can find paying taxes challenging. They often feel that they do not have enough income to pay the required taxes. This is true in some cases, but these concerns are often unwarranted. These businesses may also find it difficult to file tax returns and perform the required accounting tasks. Yet making the effort to overcome these constraints is beneficial for two reasons
X Advantages for the business: when you are up to date on your tax payments, you are able to obtain a tax clearance certificate, which you may need to present when applying for public services or when submitting a proposal for public procurement. Many businesses realize that winning a public contract can help guarantee tax payments for several years. This is a huge benefit to the business.
X Benefits to society: When your business meets its tax obligations, it helps the government provide necessary public goods and services to its citizens, such as building and maintaining roads, providing education, ensuring security, funding transportation, cultural events, etc. A business that meets its tax obligations is thus considered a good corporate citizen
In any case, if you do not file your taxes on time, the tax authorities will find you. Should this happen, the tax authorities will charge you higher amounts and penalties because you failed to meet your obligations.
What are the main taxes I have to pay as a business owner?
The two main types of taxes are personal income tax and corporate income tax. The amount of these taxes vary depending on the type of business you have registered. When you register a sole proprietorship, you and your business are considered a single legal entity. This means that the profit you make from your business is considered your personal income. In this case, you must pay personal income tax. When you have created a legal entity (for example, a limited liability company), your business is a separate legal entity. In this case, you must pay corporate income tax. However, depending on your personal circumstances, you may also be required to pay personal income tax (in addition to corporate income tax)
What types of simplified tax regimes may apply to you?
Some governments have introduced simplified tax regimes to make it easier for people in the process of formalizing their businesses to pay tax if they are unable to provide certain information. In this case, based on your statements, your turnover can be established and the taxes to be paid calculated. These schemes take three main forms:
Progressive taxation
Progressive taxation generally uses your company’s turnover to place you in a pre-defined tax category. Your tax liability, which is most often determined as a percentage of your sales, differs depending on which category you are classified in. There may also be a single tax rate applied, the level of which may depend, for example, on your industry.
Bookkeeping
Let’s see what an accountant explained to Modou:
Here are three reasons why you must absolutely keep records for your business:
• You understand your business situation better and develop better sales strategies.
• You improve your financial planning.
• You have easier access to financial services.
YOU UNDERSTAND YOUR BUSINESS SITUATION BETTER AND YOU DEVELOP BETTER SALES STRATEGIES
If you keep records of your business finances, you are able to assess your expenses and income and this gives you the ability to know if your business is doing well or not. You can also see which expense items are taking up too much of your resources so you can find a way to reduce expenses without reducing the quality of your products. This allows you to set competitive prices and increase your sales.
YOU IMPROVE YOUR FINANCIAL PLANNING
If you keep records of your business finances, you are able to assess your expenses and income and this gives you the ability to know if your business is doing well or not. You can also see which expense items are taking up too much of your resources so you can find a way to reduce expenses without reducing the quality of your products. This allows you to set competitive prices and increase your sales
YOU IMPROVE YOUR FINANCIAL PLANNING
If as an entrepreneur, you are able to remember your business transactions and clearly identify what allows you to make profits or losses, you will be able to make good business decisions for the future of your business. In addition, you can anticipate and foresee potential risks that your business may face and put measures in place to ensure its continuity. Quite simply, bookkeeping gives you visibility without which you will waste a great deal of energy for little result
YOU HAVE EASIER ACCESS TO FINANCIAL SERVICES
Financial institutions such as banks mainly use your registered accounts to assess your financial well-being and your ability to repay loans. Many entrepreneurs complain that they are not supported by banks to develop their activities or seize opportunities. Women entrepreneurs are more often concerned by a lack of access to funding. If you can produce documents that show your activities, your cash inflows, and outflows that demonstrate that you have a good capacity to repay loans, the banks will come looking for you wherever you are! If, on the other hand, your business is doing well, but you are unable to show this to your financial partner with supporting documentation, you will probably never find common ground.
Bookkeeping is the activity of keeping records of income and expenditure of money within the business. We generally distinguish between general bookkeeping and financial bookkeeping.
General bookkeeping is concerned with the day-to-day activities of your business such as purchasing and selling products or services. Financial bookkeeping goes beyond the reporting of your daily transactions. It is about planning your business activities and forecasting and executing your company’s investments. There are various bookkeeping requirements depending on your country’s legal status and regulations. As a small formal business, it may be as simple as recording your transactions (sales and purchases) in a book and keeping the records for a few years. As your business grows, it may involve filing tax returns, making formal payroll payments with tax implications (if you have employees), preparing annual financial statements, etc. Depending on the size of your business, you may be required by law to have your finances audited and reviewed by an external auditor. Please be assured that this is not meant to penalize you
X Bookkeeping requirements
The 2012 Income and VAT Act and the 2013 Single Window Business Registration Act require all businesses to maintain proper records and document annual returns (see https://www.iasplus.com/en/jurisdictions/africa/gambia)
X Accounting standards
In The Gambia, The Gambia Association of Accountants (GAA) is the standard-setter for most companies in terms of bookkeeping standards. However, to date, there are no national financial reporting standards. SMEs are permitted to use the International Financial Reporting Standards (IFRS) which usually include: a record of bank transactions, cash transactions, stock (if it is trading in goods), a file containing invoices and receipts, and a list of assets owned by the business.
X Practical support
SMEs usually refer to audit firms, accountants and business advisory firms to seek support, especially as banks, microfinance institutions, and grant projects require them to submit bookkeeping records in their loan applications.
X Tax audits
The Gambia Revenue Authority (GRA) and external auditors do check records during tax inspection visits and annual external audit exercises. Tax inspection visits are not scheduled and tend to focus on Companies
Some tips
Jainaba and Omar are giving you some advice based on what they have learned from their FYB training, especially on the topic of bookkeeping. Listen to their advice. These will surely help you
Registration Procedures
How does it work in The Gambia?
In The Gambia, the Companies Department under the Ministry of Justice is responsible for registering businesses. It is done through the Single Window Registry, a one-stop shop for business entry services. It provides an electronic registration system. The registration of a business name produces a unique business registration number. The SWR also allows the processing of applications for municipal trade licenses, business taxpayer registration, and employer registration for Social Security purposes. Here is a slightly detailed description of three common legal forms in The Gambia. This description allows you to make a free choice based on a good understanding of the advantages and constraints of each form.
Registering as a Sole Proprietorship
What does this type of business entail?
• Single ownership: one person in control
• No sharing of profit & loss
• One person’s capital
• Unlimited liability: the owner is personally liable for all business losses and liabilities
• Less Legal formalities
What do I gain (advantages)?
• Easy constitution and closure
• Maintenance of business secrets
• Quick decision and prompt action
• Better control
• Flexibility in operating
• Less record keeping
What are the constraints (disadvantages)?
• Limited resources
• Lack of continuity
• Limited size
• Unlimited liability
Which documents do I need for registration?
• Photocopy of National Identity Card, Passport, or Driver’s Licence of Proprietor / Owner
• His/her TIN (Taxpayer Identification Number) Card
• Form SWR3 to be completed (Application form)
NB: To obtain an ID Card applicant must either produce an old ID document, birth certificate, voters’ card, or a copy of a passport as proof of Gambian citizenship
Registration costs GMD500
Registering a Partnership Business
What does this type of business entail (characteristics)?
• Sharing of profits and loss
• Continuity of the business
• Contractual relationship with the partner
• Unlimited liability (where it is not limited partnership)
• Transfer of interest
What do I gain (advantages)?
• Ease of constitution
• More capital
• Sharing of risks
• Ease of dissolution
• Possibility of expansion
What are the constraints (disadvantages)?
• Unlimited Liability (for General Partnership)
• Risk of dissolution
• No transfer of shares
Which documents do I need for registration?
To register a Partnership, you should;
• Apply for a name reservation
• Complete form SWR7 (Application form)These should be accompanied by;
• A copy of the registered Partnership Deed / Agreement (This entails payment of stamp duty at The Gambia Revenue Authority and registration of the deed/agreement at the Registrar General’s office)
• A copy of TIN Card for the partnership business
• Photocopy of National Identity Card, Passport or Driving License of partners
Registration costs
• Name Reservation Fee D500
• Business Registration Fee D1,000
• Incorporation Fee (D5,000 for General Partnership, D10,000 for Limited Partnership)
Registering a Company
What does this type of business entail (characteristics)?
• Separate legal existence
• The company may sue and be sued in its name.
• Limited liability
• Separate assets/property
• Perpetual succession
• Transferability of shares
• Dividend pay to shareholders
What do I gain
(advantages)?
• Larger financial resources
• Expansion potential
• Diffusion of risks
What are the constraints (disadvantages)?
• Complex to set up
• Public records, lack of secrecy
• Lack of personal interest
Which documents do I need for registration?
In order to register a company, you should:
• Apply for a name reservation
• Fill out form SWR 7 (Application form) These should be accompanied by:
• Articles & Memorandum of Association of the company, which indicate the purpose, regulations of a company and the responsibilities of the Directors
• A copy of the TIN Card for the company
• Photocopy of National Identity card, Passport, or Driver’s license of the shareholders,
directors, and secretary. If any of the shareholders/directors is a non-resident, particulars of his/her agent must be attached.
Registration costs
• Name Reservation Fee D500
• Business Registration Fee D1,000
• Incorporation Fees are based on share capital:
Share capital of up to D500,000 Fee = D10,000
Share capital of up to D500,000 to 1,000,000 Fee = D15,000
Share capital of up to D1,000,000 to 10,000,000 Fee = D20,00
Share capital above D10,000,000 Fee = D25,000
