LEGAL ISSUES IN ENTREPRENEURSHIP

LEGAL ASPECTS OF BUSINESS/BUSINESS AND THE LAW

INTRODUCTION

The central/national government has enacted several legislations

whereby rules have been prescribed for governing and controlling the
conduct of a business.
Besides counties and state governments have also added numerous other
norms and orders to control business activities within their jurisdictions
These regulations, imposed by the local authorities are also legally
binding on business establishments.
All government regulations on business require companies to comply
with national, regional, and local statues and regulations administered by
legislative bodies and carried out by regulatory agencies. Some
regulations impact the ways in which businesses report income and pay
taxes; others regulate how they dispose of their excess materials or
waste. For just about any kind of industry and transaction, there are
government regulations on business.

Legal Requirements.
Business formation
There are no major requirements for the formation of sole proprietorship
and partnership except registration of the business name with the
registrar of companies, and preparing a partnership agreement in the
case of a partnership. For a limited liability company specific formalities
need to be satisfied. Registration is normally done by a lawyer, who
drafts the memorandum and article of association and receives a
certificate of incorporation after registering the company.

(1) Form of Ownership

In any business one of the basic procedural needs is to make the final
decision on the form of ownership to be adopted.
In case the choice is partnership form of ownership, a partnership
agreement has to be drawn up and duly registered as required by
partnership Act.
If it is to be run as cooperative society, necessary formalities are to be
completed and the firm duly registered with Registrar of Cooperative
Societies.
For a Joint Stock Company, the Major prerequisite includes preparation
of Memorandum of Articles of Association and the firm’s registration
with Registrar of Companies in terms of the companies Act.
(2) Project Registration
Newly set- up small-scale units can be registered in two phases/ first,
provisionally and next, permanently. Both provisional and permanent
registrations are documented by the concerned district industries centre
in the district where a new unit will be located.
For provisional registration; a firm has to submit its application
supported by the details and documents as may be required by the
registering authority.
The particulars required include:
 Name and address of the business.
 Bio-data of the entrepreneur.
 Copy of partnership Agreement or Memorandum and Articles of
Association.
 Copy of registration certificate.

Trade licensing and permits

This is regulated by the trade licensing act of the laws of Kenya which
stipulates that no person may conduct any business in Kenya except
under and in accordance with the terms of a current licensing. Obtaining
a trade license is a necessary pre-condition for conducting business and
you should apply to your district trade officer in the ministry of
commerce and industry.

Regulatory laws governing small business:

a) Labor laws
These include the employment Act, workman’s compensation Act
and National Social Security Fund. These regulations are
administered by the ministry of labor and deal with such matters as
regulation of wages and conditions for employment, compulsory
compensation for injury or loss of limb while undertaking work
and providing for a retirement benefit as social security.
Here are the most common labor laws:
Wages and hours- This act affects most private and public
employment, and requires employers to pay covered employees at
least the federal minimum wage and overtime pay of one-and-one-
half-times the regular rate of pay (unless they are exempt
employees).
Equal opportunity: Most employers with at least 15 employees
must comply with equal opportunity laws enforced by the Equal
Employment Opportunity Commission (EEOC). The EEOC
mandates that certain hiring practices, such as gender, race,
religion, age, disability, and other elements are not allowed to
influence hiring practices.

b) Taxation
For most small business owners, government regulation questions
almost always begin with taxes. But there’s more to taxes than
merely paying them. But the kinds of taxes you’ll pay depends on
 how you formed your business. In this regard, not all businesses
are treated the same. Sole proprietorships pay taxes differently
than, say, corporations.
Income tax: Most businesses file an annual income tax return.
Businesses must pay income tax as they earn and receive income,
and then file a tax return at the end of the year.
Employment tax: Companies that have employees are expected to
pay taxes related to having staff on their payroll. These include
Social Security

Forms of taxation that affects your business include Value Added

Tax, income tax and customs duty. You must register your
business with relevant taxation authority if you must qualify so as
to act as tax collection agency for the government.
c) Business insurance
Include regulations pertaining to business insurance, public
liability insurance for public service vehicle, National Hospital
Insurance Fund, which gives hospitalization cost relief for
members against the services.
As soon as you hire your first employee, you’re legally obligated
to purchase workers compensation insurance. Workers
compensation insurance protects both you and your employee in
the case of an accident on the job. The employee will receive
medical care and compensation for some of the income they lose
while injured, while the insurance company will defray the costs of
any lawsuit filed by the injured worker. Other types of insurance
generally aren’t required, but it depends on the circumstances. For
example, if your business contracts with the government or gets a
government-guaranteed loan, then you’ll need to show proof of
certain types of business insurance.
d) Public Health
Workplace safety and health- The Occupational Safety and Health
Administration (OSHA) requires that employers, under the OSH
Act, “provide their employees with work and a workplace free
from recognized, serious hazards.” The OSH Act is enforced
through workplace inspections and investigations.
The public health act relates to the sanitation and the hygienic
conditions of buildings (ventilation, cleanliness, drainage, toilets,
e.t.c.), as well as food production and handling to maintain good
public health.
e) Environmental Regulations
You might need to acquaint yourself with various environmental
protection laws, depending on your industry or business. This is
especially pertinent if you’re marketing, say, cleaning products,
food, or anything with claims to be natural, organic, or eco-
friendly. You’ll find dozens of environmental rules and regulations
that might affect your small business both at the national and
county level.

Aim of Laws and Regulations

1) Ensuring fair trade practices and fair competition.
2) Protecting employee interests, consumer rights and the
environment.
3) Effecting collection of revenues from business concerns.
NB:
 These rules and regulations are altered quite often.
 Depending on their business nature, size and location, different
types of enterprises will have differing rules and norms to follow.
  The business owners are personally responsible for ensuring that
their firms strictly comply with the prescribed rules and laws;
failure to which they are liable to meet with unpleasant
consequences.
 Entrepreneurs are expected to remain watchful and keep
themselves informed of latest standing orders that serve to control,
regulate and guide business activities.
 Generally, a business concern must conduct itself as regulated by
rules and laws.
 It is only after satisfying the elementary requirements, fundamental
to the structure and function of an enterprise, that the final thrust
for the launch of a unit can be undertaken.
 In this context, emphasis must be placed upon such fundamental
issues as form of ownership, industrial license, project registration,
environmental protection, trade license, employee welfare,
consumer rights, etc.

BUSINESS LOCATION/SITE/PREMISES
Introduction
Location indicates the general area of a region, state or city. Many
business owners select location by a chance, the most common
reason being ‘noticed vacancy’
Location is instrumental to business success and growth and also
its stability. An appropriate site and premises helps to reduce the
total costs of the business and facilitates contact with customers
spelling out the difference between success and failure. Locations
do have an impact
or influence on marketing the product or service.
 Sales come from customers who find it advantageous to buy from
you rather than someone else. These advantages include:
 Convenience
 Cost
 Reliability
 Good services, all of which are influenced by location

Selecting the business location is one of the several factors which

determine the success or failure of a small business. Good location
will enhance survival and success of the business while bad
location may spell doom even for the best planned business.

Information Needed In Choosing A Business Location

 The number of people living in the area (demographic)
 The kind of people living in the area (where buyers live)
 The kind of businesses in the area (where competition is,
because of ease to get in)
 The conditions /history of the area (how others have been
performing)
 The conditions and cost of the building (space, size, right
place)
General Factors In Selecting Location
Evaluate the following:
a) Social characteristics
- The population of people willing to spend their money
- The attitudes and progressiveness promoting and attracting more
people and thus increasing purchasing power
-buying habits or shopping habits /patterns of potential customers
- special features which are considered to be assets in attracting
customers to the business.
b) Economic considerations

Consider income that will be available for buying goods and

services. Competition should be surveyed and analyzed for quality,
quantity and extend of aggressiveness in the type of business
present.

c)The population and its mobility-

Consider whether there are planned regional centers
Neighboring shopping centers - that serves immediate needs of the
people located within that area eg supermarkets
Isolated enterprise sites- convenient enterprises such as local
grocery, kiosks and restaurants
e)Traffic flow and its analysis:-
The volume of customers/ the traffic passing a particular site. The
number of potential customers for specific types of goods and
services