To Incorporate...or not

Lorette Terry and Dirk Kotze
 May 24, 2021
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You took that GIANT step and have started your own business. For months, or even years, you have been plotting this dream and now you finally did it!

You are willing to risk it all to do what you love, and now you are a business owner.  With it comes much more responsibility than to deliver creative, excellent products or services to clients. You need to think like a business person as you have accounts to pay and need to survive financially. Everyone will agree that living expenses are high and therefore business owners should grab every opportunity to save money.

The next question might be how you are going to put this business on the proverbial map?  Will you be trading as a sole proprietor or register this business as a company as it seems to be the trend.

Let us look at two of your options:

Sole Proprietor or sole trader:
It is simply that you start trading as yourself. You are running a business, but there is no need to create a company name or structure. This is the simplest form of business and requires virtually no effort to set up and get going.

You need to keep accurate records of income and expenses and account for that on your income tax return. The biggest risk is that if the business fails, your creditors can come for your assets. You cannot have partners as a sole proprietor, only employees.
We can go as far as registering your trading name like “A plus plumbers” or “ABC Consulting” (if available) as a defensive name with the CIPC.

Private Company:
Also known as a Pty Ltd. This structure seems to be the trend for entrepreneurs who want to have the advantages of running their business as a company.

This entity is separate from you personally. It will have the owners (shareholders) which may be one or more persons who own the company and the managers (directors) who run the company. These can be the same people, but not necessarily.

The advantage of a company is that it gives you a more professional image and it allows several people to get together and share in the ownership of a business and makes it easier to sell portions or all of it to future buyers. There is also the element that the debts of a company generally belong to the said company. 

This is just a summary of two of the types of businesses and my trusted friend and associate, Dirk Kotze of Tributum Consulting has prepared the basic checklist as attached.

Most importantly, remember that whatever the structure you choose, be aware that the Government will still require you to register for income tax, VAT, UIF, COID, PAYE, and apply for certain licenses depending on your industry size and whether you are employing staff.

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Lorette Terry and Dirk Kotze

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