Barbados Business Structures: Key Decisions for Aspiring Entrepreneurs

27 Aug 2024

As an entrepreneur, one of the critical decisions you have to make is the structure of your business. This decision may have tax, legal, and other implications that you need to consider carefully. Factors that may inform your decision include the type of business, its objectives, the potential exposure to liability, affordability of insurance, and availability of resources. Here are the basic business structures, their advantages and disadvantages, to help you make an informed choice:

    1. Sole Proprietorship

A sole proprietorship is the simplest and most common form of business structure in Barbados. It refers to a person who owns and operates a business and is personally responsible for its debts. The proprietor can operate under their own name or a trade name. In the circumstances where they wish to operate under a trade name, they are required to register their business name at Corporate Affairs and Intellectual Property Office (CAIPO).

It is important to note that the sole proprietorship is not a legal entity and does not create a legal distinction between the owner and the business.

Advantages of a Sole Proprietorship: 

• Easy and inexpensive to form.
• Ownership and control are in the hands of the proprietor.
• Simplified Taxation - the business and the owner are the same, so the business is not taxed separately. However, it is important for owners to ensure that only expenses related to the business (and not personal expenses) are deducted from the gross profit in calculating the taxable income.

Disadvantages of a Sole Proprietorship: 

• Unlimited personal liability - the proprietor is personally responsible for all the business's debts, losses, and liabilities.
• Difficult to raise capital - it is challenging to sell an interest in the business or attract investors.
• Lack of continuity - the business rarely survives the death or incapacity of the owner.

    2. Partnership

A partnership is a business structure where two or more people share ownership. The partners usually contribute to all aspects of the business and share in its profits and losses. A partnership can be a general or limited partnership.

Advantages of a Partnership:

• Easy and inexpensive to form.
• Availability of resources - partners can pool resources to obtain capital.
• Skills and expertise - each partner's skills and expertise can be leveraged to create a successful business.

Disadvantages of a Partnership:

• Unlimited personal liability - general partners are personally liable for the partnership's debts and losses.
• Disagreement among partners - disputes can be more prominent with multiple owners.
• Lack of continuity - the partnership generally ceases if one partner dies or withdraws.

    3. Company and Society with Restricted Liability

A company exists as a legal entity, separate and distinct from its shareholders and directors. It is a legal person with all the legal rights and obligations of a natural person.

Advantages of a Company: 

• Limited liability - shareholders are not personally liable for the company's debts and losses.
• Perpetual existence - a company can continue to exist despite the death or incapacity of its shareholders or directors.
• Incorporation signals maturity to investors – an entrepreneur may therefore find it easier to raise capital through a company than a sole proprietor.
• Taxation-corporate tax rates are typically lower in Barbados at 9% (subject to certain exceptions) than the tax rates that would apply to a sole proprietorship or partnership.

Disadvantages of a Company: 

• Costs – incorporation and annual maintenance typically involves more fees than a sole proprietorship and partnership.
• Required Filings- companies are subject to more regulations and formalities than sole proprietorships or partnerships including requirements for filings at the Corporate Affairs and Intellectual Property Office (CAIPO), the International Business Unit (IBU) and the Barbados Revenue Authority (BRA).
• Corporate Governance Requirements- decision making in a company requires formalities such as minutes and resolutions at certain stages and general good corporate governance practices being implemented and maintained.

Where a separation between the owner and the business is required, the business may also be established as a Society with Restricted Liability (SRL) which in Barbados is a separate legal entity operating substantially like a company subject to certain distinctions. In addition, the terminology used in the context of an SRL is different so that for example, directors are referred to as ‘managers’ and shareholders are referred to as ‘quota holders’ and shares are referred to as ‘quotas’. SRLs are typically used to achieve specific tax objectives.

In conclusion, choosing the right business structure requires careful consideration of the advantages and disadvantages of each option. By understanding the implications of each structure, you can make an informed decision that best suits your business objectives and circumstances.

For further information on Barbados business structures, feel free to contact us at info@ft-legal.com, or your usual contact at www.ft-legal.com.