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The types of business structures.
There are actually quite a few different types of businesses structures available to South Africans: sole proprietor, close corporation, private company, public company, partnership, business trust, non-profit organisations, and probably a few others. We are only going to deal with the first three as they are by far the most common (and useful) structures in which to create a business.
1. Sole Proprietor.
Also known as a sole trader. It is simply that you start trading as yourself. For example, you could fix peoples cars for which they pay you. You are running a business, but there is no need to have a company name or structure. This is the simplest form of business and requires virtually no effort to set up and get going. You do need to inform the tax man of your extra income, although this will often be offset by business expenses. The biggest risk for this structure I that if the business fails, your creditors can take all your assets: your house, your car, your furniture – everything to recover the money you owe them,, because you are the business. You cannot have partners as a sole proprietor, only employees.
2. Close Corporation.
Also known as a cc. This is the cheapest, quickest and easiest way to setup a “company” or formal business structure. Once you have registered with the Government you will have the name of your cc with which you can trade. You the “member” now own the cc. The cc is the “legal person” who will receive the income from your customers and pay the expenses to your suppliers. It will eventually own assets and owe liabilities. The latter is quite important. In the event of a cc going broke, the member is not liable for the debts (unless you have traded recklessly, fraudulently, have signed sureties or owe the taxman). This means that in most cases you still have you house and car, and can try and start another business. The cc also allows you to go into business with others as several members can own a cc and then share the profits of their work.
3. Private Company.
Also known as a Pty Ltd. This is a more expensive way to set up a company and requires the financial accounts to be audited each year. The advantage is that it gives you a more professional image and working with auditors can help ensure that you are running things properly and following the law – particularly when it comes to certain taxes. You are also able to have other companies or similar legal structures that are share holders of your company. If there are likely to be quite a few shareholders, you may be forced to choose this option over a cc.
All
Whatever your structure you need to be aware that the Government will still require you to register for income tax, VAT, UIF, COID, PAYE and to apply for certain licenses depending on your industry, your size and whether you are employing staff.
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