Private Company vs Sole Proprietorship vs Partnership in South Africa 2023


What is the difference between the company business and legal entity?

In contrast to investors in a Private Company, the proprietor/accomplices of Sole Proprietorships and Partnerships are expected to take responsibility for the business in their own abilities. • A Company ought to be enrolled with CIPC, while Sole Proprietorships and Partnerships don’t. • With Sole Proprietorships and Partnerships, the proprietor/accomplices should pronounce the business’ pay in their own names.
Beginning another business or company? This is the very thing that you ought to think about while choosing the right business structure for your new pursuit

The most common business structures in South Africa are Private Companies, also known as ‘(Pty) Ltd, Sole Proprietorships and Partnerships.

Each of the mentioned entities has its advantages and disadvantages, which will play a significant role when making the final decision. A lot needs to be considered when selecting the appropriate structure.

Main features

A Sole Proprietorship is the simplest form of a business entity, where the business is not separate from yourself.

A Partnership will be suitable for a group of individuals/entrepreneurs who wish to start a business.

A Sole Proprietorship and Partnership are not separate legal entities. In both, the owner/partners have unlimited liability in their personal capacities. A company, however, is a separate legal entity, and the shareholders of the company have limited liability in their personal capacities. However, a company has significantly more administration requirements, including initial capital to start up the business.

Registering your business

As you do not have to register your Sole Proprietorship at the Companies and Intellectual Property Commission (CIPC), you can choose any name you want to trade as. The same goes for a Partnership.

As for a company, you need to submit the chosen names for your company. Once CIPC has approved the name, you can register the company with them.

Management and decision making

One of the advantages of a Sole Proprietorship is that you are the only owner and have full control over your business and the decision-making.

As for a Partnership, where there can be up to 20 partners, decision-making can be very slow as the decisions are made collectively. The directors of a company have shared authority over the day-to-day activities, and all the decision-making will be recorded on the company resolutions.

Risk and liability

Should you consider a Sole Proprietorship, you should keep in mind that you will have unlimited liability in your personal name, there is no separation between yourself and your business, you will be legally liable for all the debt incurred. This means that creditors can come after you and take your car, equipment, or house.

A Partnership is also not a separate legal entity as the partners also have unlimited liability in their personal names for any debt incurred in the Partnership. This can become a problem where one partner acts recklessly and incur financial losses.

The shareholders of a company have limited liability, which means they are not to be held responsible for the company’s liabilities – with a few exceptions. Should the company become insolvent, the creditors cannot claim from the shareholders.

Statutory SARS submissions

Because Sole Proprietorships and Partnerships are not separate legal entities, the owner/partners have to register for income tax, and each is responsible to declare all the business income and expenses on their annual personal income tax returns. They will then be taxed according to the individual tax tables.

As for a company, as it’s a separate legal entity, the company itself needs to be registered for income tax. The company also has to declare all the income and expenses on their annual tax return. The company profit will be taxed at a fixed rate of 28%. Should any of the three business entities discussed employ someone, they will have to register for Pay As You Earn (PAYE) and submit a monthly employer declaration return (EMP201) to the receiver. Should any of the business structures exceed an annual turnover of a million rand or more, they are required to register for Value Added Tax (VAT) and submit monthly, bi-monthly, or bi-annual VAT201 returns.

Annual Reports

A Sole Proprietorship and Partnership have no obligations to prepare statutory annual financial statements.

As for companies, all private companies need to prepare a set of annual financial statements and submit them to the South African Revenue Service (SARS).

Some companies need to have their annual financial statements audited if their Public Interest Score (PIS) exceeds a certain score.

There is a lot to consider before choosing the right business structure for you. Should you choose the Sole Proprietorship as the best structure for your current needs and the business grows beyond your expectation, you can then register a company when the time is right. You are not bound to stick to your first business structure.

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