Key differences between Sole Proprietors, CC’s and Companies

Business Model

Get Free Email Updates!

Join my community and receive FREE resources weekly to help you thrive!

I agree to have my personal information transferred to MailChimp ( more information )

I will never give away, trade or sell your email address. You can unsubscribe at any time.

If your Small Business needs financial or legal protection with a Corporate Image, a Company is the best option for you.

If your Small Business is registered as a Close Corporation you can still continue to trade and use this model for all your business purposes although you can no longer register a new Close Corporation in South Africa.

If you do not want a second tax obligation and just want to keep all your business relations basic and simple, and you do not mind being personally responsible for all the bills then you could choose to remain as a Sole Proprietor.

In the below comparison post I explain key differences between 3 Business Models or “Vehicles” as I like to refer to a Small Business as a Journey.

Your journey needs basic tools and support to reach its desired destination.

One imperative tool is the “HOW”

How will you reach your destination?

The type of vehicle we choose to partake in a journey determines

  • how quickly we get there,
  • how easy we get there,
  • and how safely we get there.

There are several Business Models to choose from – just as you choose your type of transport for a specific journey, you should choose the type of  Business Model for your Small Business.

For this discussion, let’s look at the key differences between:

  1. Sole Proprietorship
  2. Close Corporations
  3. Private Limited Company

KEY DIFFERENCES between Sole Proprietors, CC, and Companies

REQUIREMENTS SOLE PROPRIETOR CLOSE CORPORATION COMPANY
NAMING TRADING AS REGISTERED UNDER CC ACT REGISTERED UNDER COMPANIES ACT
NAME UNDER COMMON LAW
NAME USAGE EXAMPLE John Doe t/a DOE Trading DOE Trading CC DOE Trading (Pty) Ltd
REGISTRATION NUMBER FORMAT NO REGISTRATION – under personal ID 2001/012345/23 2001/012345/07
REGISTRATION NUMBER REQUIREMENT Voluntary Must appear on ALL Letterheads, Invoices, and Contracts Must appear on ALL Letterheads, Invoices, and Contracts
COMPLIANCE ADVANTAGE The owner remains responsible for all debt Members are protected from CC debt unless surety is signed Director is protected from Company Debt unless surety is signed
NON-COMPLIANCE PENALTY The owner remains completely responsible Members take full responsibility Directors take full responsibility
LEGAL STATUS Natural Person Legal Person – Juristic Entity Legal Person – Juristic Person
OWNERSHIP Ownership belongs to Owner Close Corporation belongs to the Members The company belongs to the Directors and the Shareholders
MANAGEMENT Business is managed by the Owner Close Corporation is managed by the Members The company is managed by the Directors
MAXIMUM NUMBER 1 Sole Proprietor 10 Members 50 Shareholders & Directors
FINANCIAL LIABILITY The owner takes full liability for Debt Close Corporation takes liability for the debt The company takes liability for the debt
The owner can lose personal assets CC must pay bills The company has a full liability to pay
Members assets conditionally safe Director’s assets conditionally safe
Members have conditional limited liability Director has conditional limited liability
RISK The owner is legally sued for losses or damages Close Corporation is sued for losses and damages The company is sued for losses and damages
PENALTIES FOR BREACH OF LAW Fines Fines Fines
Imprisonment Imprisonment Imprisonment
No limited Liability Loss of Limited Liability Loss of Limited Liability
ACCOUNTING REQUIREMENTS Must keep a full set of Books Must keep a full set of Books Must keep a full set of Books
Compiled Annual Financials Compiled Annual Financials Compiled Annual Financials
Registered Accounting Officer Registered Independent Accountant
AUDITING REQUIREMENTS NO Turnover above R100m Turnover above R100m
TAX REQUIREMENTS Annual Personal Income Tax Return Close Corporation is registered for Corporate Tax Companies are registered for Corporate Tax
Provisional Income Tax Returns Annual Corporate Tax Return Annual Corporate Tax Return
VAT Registration above R1m turnover Provisional Tax Returns Provisional Tax Returns
VAT Returns (if registered) VAT Returns (if registered)
PAYE Returns PAYE Returns
Workmen’s Compensation Returns Workmen’s Compensation Returns
COMPLIANCE FEE EXAMPLES Annual Financials Annual Financials Annual Financials
Annual Income Tax Annual Tax Returns Annual Tax Returns
Monthly Tax Returns Monthly Tax Returns
Monthly VAT Returns Monthly VAT Returns
Annual Workmen’s Compensation Assessments Annual Workmen’s Compensation Assessments
ANNUAL CIPC REQUIREMENTS NONE Annual CIPC Return Annual CIPC Return
*Within one month from the anniversary date *Within one month from the anniversary date
MARGINAL TAX RATES Individual  Maximum Tax Rate @ 41% Corporate Tax Rate @ 28% Corporate Tax Rate @ 28%
Turnover Tax @ 3% Dividends Tax @ 20% Dividends Tax @ 20%
VAT @ 15% VAT @ 15%
UIF @ 1% UIF @ 1%

 

If you need further advice on what Business Model to register for your Small Business, do reach out to me for ways on how I can assist you and your Small Business.

You are also INVITED to join my FREE Facebook Group, EXCELSIOR, for a community of Entrepreneurs and Small Business Owners to help, support, and empower each other!

Also do not miss out to subscribe to receive our newsletters for regular valuable business insights.

Hope to see you soon!

Shalom!

Yvette

 

Leave a Reply

Your email address will not be published. Required fields are marked *