Forms of Enterprises
Senior 3 · Entrepreneurship
Forms of Enterprises
Lesson 2 of 4
24 min
Mutoni has run a tailoring stall in Nyamata market alone for four years. She buys the fabric, sews, sells, keeps all the profit and answers to nobody. Now a school wants 200 uniforms, which she cannot make alone or pay for in advance. Her friend Keza, a skilled designer, offers Frw 2,000,000 and her own sewing machine if they become partners.
Should Mutoni stay on her own or share the business? To answer, she needs to know exactly what each form means for ownership, money, decisions and risk. Mutoni, Keza and their figures are illustrative.
Definition
Sole trader (individual enterprise or sole proprietorship): a business owned by one person, who provides the capital, makes the decisions, keeps the profit and bears the losses. The Rwanda Development Board (RDB) describes an individual enterprise as an unincorporated business with a single owner who pays personal income tax on its profits.
Unincorporated: not a separate legal person; in law the business and the owner are one.
Example: Mutoni’s stall is an individual enterprise: if it owes a supplier money, Mutoni owes it.
| Advantages | Disadvantages |
|---|---|
| easy and cheap to start; RDB registration is simple | unlimited liability: the owner’s personal property can be taken for business debts |
| the owner takes all the profit | capital is limited to the owner’s savings and what she can borrow |
| quick decisions; full control | the owner carries all the risk and work alone |
| close contact with customers | no one to share ideas or skills with |
| business affairs stay private | the business may end if the owner falls ill or dies |
This is by far the most common form in Rwanda: NISR’s 2023 census found that 92.0% of establishments in the private and mixed sectors were sole proprietorships.
Definition
Partnership: a business owned by two or more people (partners) who agree to carry it on together, share its capital and work, and share its profits and losses.
Partnership agreement (deed): the written agreement that sets out the partners’ rights and duties.
Example: if Mutoni and Keza sign an agreement to run the tailoring business together and share profits, they form a partnership.
Partnerships are governed by Law N° 008 of 2021 governing partnerships, which recognises three types:
| Type | Key features in the law | Partners’ liability |
|---|---|---|
| General partnership (GP) | partners must be individuals and act as agents of each other for the business; at least one partner lives in Rwanda or appoints an agent there; no separate legal personality | unlimited for every partner |
| Limited partnership (LP) | at least two partners: at least one general partner, who manages, and at least one limited partner, who does not take part in management; no separate legal personality | unlimited for general partners; limited to their contribution for limited partners |
| Limited liability partnership (LLP) | a body corporate with legal personality, able to own assets in its own name | limited to each partner’s contribution |
| Advantages | Disadvantages |
|---|---|
| more capital than one person can raise | profits are shared |
| partners bring different skills and share the work | disagreements can slow or break the business |
| losses and risks are shared | in a GP, every partner is liable for debts a partner incurs for the business |
| easier to form than a company | a partner leaving can disrupt or end the business |
Tip
Memory hook. Ask three questions of any form: Who owns it? Who decides? Who pays if it fails? For a sole trader the answer is “one person” three times. For a general partnership it is “all the partners” three times. Limited liability changes only the third answer.
Worked example 1: sharing profit in a partnership
Mutoni contributes Frw 3,000,000 (her stall, stock and machines) and Keza Frw 2,000,000. Their agreement shares profit in the ratio of capital. In the first year the profit is Frw 1,500,000. How much does each receive?
Step 1: the ratio: , so there are parts.
Step 2: one part: Frw.
Step 3: shares: Mutoni Frw; Keza Frw.
Check: . ✓ Without an agreement, partners may argue over this; the agreement settles it in advance.
Worked example 2: what unlimited liability means
A sole trader’s shop fails owing suppliers and a bank Frw 4,500,000. The shop’s stock and equipment are sold for Frw 2,800,000. What happens to the rest of the debt?
Step 1: shortfall: Frw.
Step 2: who pays? The owner has unlimited liability, so creditors may claim the Frw 1,700,000 from her personal property: savings, land or house.
Step 3: compare. Had the shop been run through a company limited by shares, the shareholders would lose only what they had put in, and the creditors’ claims would stop at the company’s own assets (left-hand and right-hand panels of the diagram).
Warning
Common mistakes. (1) Writing that a sole trader “employs no one”: a sole trader has one owner but may employ workers. (2) Forgetting that in a general partnership every partner is liable for the business’s debts, including debts another partner took on for the business. (3) Starting a partnership with only a verbal promise: write and sign the agreement.
Limited Liability and Unlimited Liability, from Two Teachers (about 3 minutes). Watch for which business forms have each kind of liability, and compare with the diagram in this lesson.
Practice
Sources and credits
Written by Ganzaa: the Mutoni case, the tables, the liability diagram, the worked examples and the practice items. The people and figures are illustrative (2026).
This lesson adapts CC BY-SA material and is shared under CC BY-SA 4.0.
