Business Start-up

So, you want to start your own business? First let’s run through a quick check list to make sure you know what you’re letting yourself in for.

Reasons to start a business:

  • You are your own boss and do not have to answer to any “dictator”.
  • Increased flexibility in working hours and work tasks. You can choose when and how to do things.
  • You benefit from all your good work. All profits are for your pocket, not someone else.
  • The sky is the limit. If successful, your earnings could make your current salary look insignificant.
  • You get to do something you enjoy.
  • You get the chance to employ others and improve their lives.

The new companies act which became effective in South Africa during 2011 has slightly changed the various business structures available to South Africans: sole proprietor, close corporation, private company, public company, partnership, business trust, non-profit organisations, and a few others. We are only going to deal with the first three as they are by far the most common (and useful) structures in which to create a business.

Sole Proprietor

Also known as a sole trader. It is simply where you start trading as yourself. For example, you could fix peoples cars for which they pay you. 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 do need to inform the tax man of your extra income, although this will often be offset by business expenses. The biggest risk for this structure is that if the business fails, your creditors can take all your assets: your house, your car, your furniture – everything to recover the money you owe them, because you are the business. You cannot have partners as a sole proprietor, only employees.

Close Corporation

Also known as a cc. This form of business has been discontinued and is no longer an option if you are only starting now. CC’s that existed before 2011 can continue to exist, but no more are being registered.

Private Company

Also known as a Pty Ltd. This is now the most likely structure for entrepreneurs who want to have the advantages of running their business as a company. Essentially a new entity (think of it as an imaginary “person”) is created and called 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. Sometimes these are the same people, but not necessarily.

The advantage of trading as a company is that it gives you a more professional image and being reviewed by an accountant can help ensure that you are running things properly and following the law – particularly when it comes to certain taxes. You are also able to have other companies or similar legal structures that are shareholders of your company. 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.

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

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