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Should I register my business?

Posted: February 3, 2017 at 10:57 pm   /   by   /   comments (24394)

Should I register my business?

When starting a business, there are so many things to consider and admittedly, most don’t even cross our minds until they become absolutely necessary. Things like ‘Pay As You Earn’ registration, VAT registration, HR regulations, basic conditions of employment are all vital things for businesses to think of and plan for, but only at a certain period of your business growth.

One of the factors that should be considered early is whether or not to register your business (or idea) as a company or to trade as an individual. Of course, you can always register later in your journey, but there are some basic thingsĀ to consider when thinking about the future of your business.

Types of business registration

    • Sole Trader
      Any person can start a business and trade in their own name. This approach does not require any formal registration with any body. As an example, Zama can start a small business selling hand made bags. She will be Zama Mazibuko trading as Zamabags. Zama can open a bank account for the business in order to keep separation of finances. Zama will be taxed based on personal tax tables and the profit of the business will be a factor.
      The most important consideration for sole trader is that the law does not recognise a separation of business assets and liabilities from your personal assets and liabilities. This means that business debt is personal debt and you will be held liable for these.

 

    • Closed Corporation
      A closed corporation can no longer be registered in South Africa. Existing Closed Corporations continue to trade as usual, and can convert to a Company. Shelf Closed Corporations may still be available for purchase, but we would recommend that if you are looking to formally register a business, that you register a company.

 

  • Private Company (PTY LTD)
    Registering a company is (all things considered) the best route to take. There is a cost associated with the registration and annual maintenance but unlike a Sole Trader, the directors or shareholders of a company enjoy what is called limited liability. This means that the company’s debts cannot be recovered from the directors or shareholders unless surety has been signed or a court finds good reason to hold directors and shareholders liable. The tax structures for companies are also very different to that of a sole trader but hold some benefits which you can read about here: Understanding Business Tax in South Africa

To summarise,

Do you want to have proper separation of business and personal finances? – register a company.

Will your business remain a small hobby-type business for a side income that you don’t intend to grow? – Trade in your personal capacity.

Will limited liability be something potentially important to you? – register a company.

Will your business qualify for small business tax? – register a company.

If you don’t want anything formal, or annual ‘maintenance’ of your business, trade in your personal capacity.

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