Hopeton Morrison, Staff Reporter
RODNEY, A 'born Jamaican' writes from the USA:
Dear Hopeton,
I have been researching for the longest time what sort of business structure does Jamaica have that is similar to the corporate structure in the United States. To expand, here in the U.S. one can either start a sole proprietorship by obtaining the relevant numbers from the IRS; one can form a partnership by filing the relevant documents with the Secretary of State, or one can incorporate by also filing the relevant articles of incorporation.
I am more interested in the corporate structure, not only because of its liability protection, but due to its share ownership structure and thus a more feasible and easier way to obtain financing from friends and relatives.
BASIC STRUCTURES
Per the Offices of the Registrar of Companies, I see where there are two basic structures to choose from, these being a company and a business. The company structure seems to be identical to that of a U.S. corporation. I would be happy if you could confirm that fact and also comment on whether or not any form of commercial activity can be registered under a company. I was told that ventures like farms cannot be registered as a company.
P.S. I would be happy if you could direct me to some Jamaican literature that addresses this issue (entrepreneurship). I am a born Jamaican in the U.S. that would like to be more informed."
Dear Rodney,
I spoke with a couple of persons at the Office of the Registrar of Companies. Basically, any commercial activity can be registered as a business in Jamaica except for one that does not have a fixed address. Even here however, where there is not a permanent address for the business a home address can be used for the registered office and that registered office can be anywhere even though the actual business itself must be in a commercial zone.
You mentioned in your letter that it is your understanding that businesses can be divided into a company or a "business". I suspect that "business" here refers to a "business name". In Jamaica a business can be registered in a number of ways. If you register as a company you can be a limited liability company where the shareholders bear the brunt of any and all losses to the full extent of their shareholdings. You can also have a company registered by guarantee where no shares are allocated and all members of the company guarantee the full extent of any and all losses. Organisations such as churches, service clubs and other non-profit-type organisations chose this route.
IMPROVEMENT
You can also register a business as a 'Business Name 1' in the case of a Sole Trader or a "Business Name 2" in the case of a Partnership. Things have improved tremendously at the Office of the Registrar of Companies these days as you simply pay J$1,500 and you get a certificate in three days.
In registering a company in Jamaica you need at least one director. If shareholder and director are represented by the same person then in the present Company's Act you need at least two shareholders. But the good news is that the Company's Act has undergone major revisions and the new act, slated to be effective in January 2005, will allow one person to form a
company.
The present act also prescribes significant differences in registering companies here as against the process there in the U.S. but the revised act will present significant similarities. For example, whereas you can register a company there over a website that is not allowed here under the present act. Additionally, to register a company there the process is relatively simple whereas in Jamaica at present you need to come up with two different sets of documents in the form of a 'Memorandum of Association' and 'Articles of Association'. The good news again is that come January next year, the new act will move closer to what is required in the U.S. where, as you outlined above it is often a relatively simple process of filing the relevant Articles of Incorporation.
SIMPLE DOCUMENT
That is exactly where the new Company's Act is going. You will also need to file a "Declaration of Compliance" which again is a simple document. In fact one of the major deterrents to forming companies here now is the fact that the Memorandum and Articles invariably have to be drawn up by a lawyer usually at considerable cost to the Incorporator.
You also enquired about whether farming ventures can be registered as a company. There are some restrictions here. Any type of farming activity can be registered as a limited liability company. But if you are registering as a business name, only "cultivation" type activity can be registered as such. Livestock farming on the other hand cannot be registered as a business name.
The process might even be easier for you Rodney. It is a simple process I understand to register a company incorporated there in the U.S. right here in Jamaica. All you need is to have a Notary Public certify a copy of the documents that you have submitted there for incorporation and your company will be registered as an 'Overseas Registration'. There might be some specific advantages here for you don't you think? In fact, based on the significant changes coming in the new act which will become law shortly, it might be a better idea to hold your plans until this Act is enacted.
I doubt that this response covers all that you enquired of me here but I have found the 'new' Office of the Registrar of Companies pleasantly co-operative. Two gentlemen, Mr. Manning and Mr. King, were most generous in providing far more information than I could reproduce here. Give them a call and an e-mail address and I am confident that all of your queries will be answered.
On the matter of Jamaican literature on entrepreneurship there is only one local commercial publication that I am aware of on the subject and that is a book written by Postmaster General Blossom O'Meally Nelson, the title of which I will mention in a subsequent column. There are, however, some excellent studies carried out on the Jamaican micro and small business sectors especially by the United States Agency for International Development (USAID) and the Inter-American Development Bank (IDB) which I am sure you can access on their respective websites."
ANOTHER READER WRITES:
Dear Hopeton:
I am a young businessman with interest in income properties (rentals). Now I have recently acquired a piece of property from a relative as a gift (a real good income earner) with transfer documents signed and so forth.
My problem is that I need approximately $500,000 in the form of a loan to send papers to the Stamp Office to complete the transfer. I have asked every bank, relative and friend I know. But in the case of the banks (which include credit unions) the property would have to be already in my name. Or I should
have some other collateral. Well I don't and I really need to close this deal. Sir, do you know of any way I could acquire this money? I am open for advice and direction.
Dear Reader,
There are good reasons why many financial institutions avoid lending for the type of situation that you have outlined. In the first place the attorney involved holds the key to the "lending institution's" interest and all of the institutions that we know about will only deal with a reputable and established firm of lawyers here. The reasons for this surround the inefficiencies that often surface in these types of transactions which can cost the lending institution dearly in terms of delays in collecting on the loan.
For one thing serious problems invariably arise if adequate information is not forthcoming from both vendor and purchaser. Another problem arises because of irregularities sometimes arising in the transfer process involving ALL parties (bar none) to the transaction. As a result many, perhaps most, institutions prefer clients to source the funds elsewhere to acquire the title at which point they are usually quite comfortable in lending the funds to recover your costs. There are some financial institutions however that will lend you the funds regardless and these institutions usually require the following:
Proof of a signed Transfer Document from a "reputable and established law firm". As stated above it is crucially important that the law firm is not a one person or otherwise small entity but one where in the event of the death, illness or some other unfortunate occurrence involving the principal of the law firm, there are other persons in the legal entity that will ensure that the lending institution's interest is never compromised.
LEGAL FEES
In addition to the proof of transfer, you will also need a statement of legal fees outstanding from your attorney; the last tax certificate; a recent property valuation report; an undertaking by the law firm to register the lending institution's mortgage simultaneously with the transfer and that the title will be submitted to the lending institution within 90 days; verification of your income to ensure that you can afford the loan; credit references; valid identification; and your TRN.
The institution will always be more inclined to assist you if you have a solid credit history and you are also one of their more preferred clients.
You mentioned that you have asked every bank (including credit unions) that you know of without success. Perhaps you should call around to some that you don't know of. Nonetheless I have enclosed the names of two institutions (under private cover) that I believe will assist you.
Hopeton Morrison is general manager of St. Thomas Co-operative Credit Union Ltd. and lecturer in the School of Business Administration at the University of Technology. Please send comments and questions to: hmorrison@stccu.com.
