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:
- Sole Proprietorship
- Close Corporations
- Private Limited Company
|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|
|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.
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