Choosing Your Business Structure

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Planning on starting your own business? Once you have decided on a product or service, you need to consider what type of business you want to operate. Each business model has its own specific requirements and operational identity.    

Sole Proprietor/Trader

The Sole Proprietor/Trader is the most basic form of business and consists of one owner. The only requirement is meeting basic tax and legal paperwork. Because the owner is the sole member of the company, all liability and possible legal action falls to him/her and personal assets, should the business accumulate unpaid debts.

Once the owner passes away, the business ceases to exist. This type of business does not need to be registered as a legal entity itself. All legal matters are referred personally to the owner.

Partnership

The Partnership paradigm closely resembles the Sole Proprietor, but can include as many as 20 partners. Each must have a clearly stipulated role, share, profit cut and liabilities. Every aspect of a business partnership must be agreed upon and every liability is shared.

Losses, legal action and security are all placed on the group as a whole. A business partnership does not need to be registered, but all legal documents must be correctly drawn up between the partners.

Private (Pty) and Limited (Ltd) Companies

These types of business offer directors protection from individual liability. A company can make shares available to staff as a Private company (Pty) or to the public as a Limited company (Ltd), and these are easily transferred from one owner to another.

(Pty) Ltd companies are subject to an annual audit. This is the best legal structure for people who ultimately want to sell their business to a large competitor, or to be listed on the stock exchange.

Specific information regarding SA company structures can be found at the Companies and Intellectual Property Commission (CIPC) website www.cipc.co.za

It is also a good idea to contact the local Chamber of Commerce in your area for advice and networking opportunities.

‘Life is like a cash register, in that every account, every thought, every deed, like every sale, is registered and recorded.’ –  Fulton J. Sheen

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