There are a lot of questions that can be asked when someone advises you to “open a company”. It is a great piece advice but depends on various factors. This depends what kind of entity you want to run and why.
Sole Proprietor
- Characteristics
- Most common and the most simple
- Owned and operated by a natural person (ie: not a legal entity)
- No legal separation from the owner / proprietor
- Responsibilities
- Owner incorporates the income generated in his personal tax return and is liable for the tax payable if applicable.
- Only the has the authority to make decisions for the business
- Owner accepts all risks of the business
- Owner determines the extent that his personal assets are used for income generating purposes
Partnership
- Characteristics
- Is a relationship existing between two or more natural persons who join together and carry on a trade, business or profession
- Is not a separate legal entity
- Each person may contribute money, property, labour or skills, and each expects to share in the profits and losses of the partnership at the same percentage.
- Number of persons is limited to 20,
- Responsibilities
- This is the same as the sole proprietorship except the partners replace the proprietor.
Close Corporation
- This type of entity was very common and has a few advantages over the other types of entities. However, new CC’s are no longer available for registration and although the CC’s in existence can carry on as they stand indefinitely, they are encouraged to be converted to a Private Company
Private Company
- This is known as a Pty (Ltd)
- Characteristics
- Is a separate legal entity
- Must register as a tax payer in its own right
- Has a separate life from owners with rights and duties that accompany it
- Owners are called shareholders
- Responsibilities
- Shareholders have limited liability ie they are generally not responsible for the companies liabilities
- The company is responsible for taxes due. This is done through a company tax return.
This is a basic breakdown of the most commonly used company structures used in South Africa. For a more detailed description you can contact us on 081 529 5129 or bruce@vibrant-booth.197-189-226-226.plesk.page or visit the SARS website on www.sars.gov.za
This article was updated on 31st March 2021.