Thursday 12th of May 2022
Setting up a business is one of the biggest milestones for aspiring entrepreneurs. The thrill and
...excitement of building an organisation from scrat...
Setting up a business is one of the biggest milestones for aspiring entrepreneurs. The thrill and excitement of building an organisation from scratch are unmatched. The process begins with an idea that is elaborated through a business plan that acts as the blueprint of the entity. It helps to determine its operations, hierarchy, distribution, supply chain, marketing, finances and management. However, before going ahead with the plan, the entrepreneur has to decide the business structure. It is the essence of the company and must be determined in advance.
The business owner must register the entity and determine its tax and legal obligations. There are many options to choose from when determining the business structure, such as partnership, proprietary limited, sole proprietorship, etc. Every type has its benefits and downsides. So, here is a list of business structures in South Africa to choose the right one. It will help you make an informed decision and run the venture successfully.
A sole proprietor is also known as the sole trader and, as the name suggests, is the only person operating the business. They trade in their name and do not have a separate business name. Thus, they do not need to register the sole trading business but must register for taxes with the South African Revenue Service. It is the easiest type of business structure and requires minimal capital.
It is owned and operated by a single person who becomes liable for all the business debts. So, if the entity goes into losses, the sole trader has to part with personal funds. Conversely, if it generates high profits, it can be enjoyed by the owner-operator. It is easy to set up and discontinue because it is not a legal entity with no employees. However, growth can be challenging with just one person looking after everything and limited funding available.
A business that is owned by two or more individuals is known as a partnership. It can have up to 20 co-owners who invest in the entity and work towards common goals. Every partner has to pay taxes on their profit share in the business. They share the profits based on the agreement between the co-owners. They are personally liable for debts, and their personal funds and assets can be lost in case of failure.
Although partners can help with funds and resources, they can also lead to disputes. If the partners decide to withdraw, the business may cease to exist. Thus, many aspiring entrepreneurs prefer buying a business for sale South Africa to become the owner of an existing entity built in compliance with regulations.
A private company limited (Pty Ltd) is the most common business structure in the country and is a separate legal entity. It is also known as a proprietary limited company and must be registered. Since it is a separate legal entity, the owner is not liable for debts, and they belong to the company. The owner has limited liability in case the business fails. It can have more than one owner and shareholders.
A private company is considered a credible venture and gets funding easily. It requires substantial investment, and its ownership can be transferred without hassles. The entity continues to exist even if the shareholders are replaced, or new partners take ownership.
A public limited company (Ltd) is registered as a separate entity that can trade on the stock exchange and offers its shares to the public. The securities issued through initial public offering help to raise funds. A public limited company must have three directors and seven shareholders. Those who buy the stocks from the business become its shareholders and equity owners.
If you are looking for business opportunities in South Africa, you can start a public limited company that can generate capital easily by selling shares to the public. The shareholders have limited liability, which means if the business fails, their liability will be limited to the value of their investment. However, it can be challenging to manage a company with many shareholders. Also, they get evaluated by the public and must maintain transparency.
A personal liability company (Inc.) must prepare a memorandum of incorporation like a private company. In this structure, the current and past directors of the company are liable for debts that are or were incurred during their terms. A personal liability company cannot offer its securities to the public. Professionals offering customer services can utilise this structure by building a law firm or healthcare Inc.
It helps the owner to maintain their ownership and legal compliance The owners of a personal liability company can distribute profits among the company members based on their choice. Setting up this structure requires only one director, and the taxes are paid after profit distribution.
A state-owned company is partially or entirely owned by the government. It is also known as a state-owned enterprise in the Public Finance Management Act 1 of 1999 (PFMA). These businesses are crucial for the country because they provide the infrastructure for the growth of the economy. They get financed from the government and can acquire resources easily. Thus, they are easier to sustain and expand.
These entities can be philanthropic in nature and may not be interested solely in boosting profits like other commercial endeavours. However, these also have some problem areas that affect its longevity, such as political interference and mismanagement of resources or finances. Thus, if you are planning to buy a business for sale South Africa or start a new one, you must consider the structure carefully before signing the deal.
A non-profit company must be registered with the Companies and Intellectual Property Commission (CIPC). They are created with the goal of serving communities or the environment. They are not profit-making businesses and operate for the greater good. These entities include charitable organisations, churches and cultural organisations.
They are legal entities that must have three directors, and the income generated by the company must be used only for its promotion. They get tax exemption and funding from various sources to complete their projects through fundraising. However, they are not able to get a big fund through this activity.
Wrapping Up
If you are looking for business opportunities in South Africa, you must know about the right business structure. It must suit your requirements and allow you to function without limitations in the chosen marketplace.
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