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How to choose a Business EntityPhezulu is passionate about assisting small and medium businesses, therefore the articles we produce for this blog series are based on the business life cycle of a typical entrepreneur. Entrepreneurs come in all different shapes and sizes but the one thing we do all have in common is the legislative hurdles that we need to clear to legally remain in business. We have purposely used the word “legally” here because it is possible to be in business illegally, and by this I don’t mean you’re in the business of criminal activity, you may just be conducting a legal business but going about it in the incorrect manner.

The first thing most entrepreneurs do is formalise the structure under which they plan to conduct their business. There are several different types of business entities you can choose from when you wish to get started in business. We will focus our articles on the most common ones:

  • Sole Proprietor – this is the simplest form of entity as you require no forms to set it up and you can begin any time you choose. A sole proprietorship, also known as a sole trader or simply a proprietorship, is a type of business entity that is owned and run by one individual and in which there is no legal distinction between the owner and the business. The owner receives all profits (subject to taxation specific to the business) and has unlimited responsibility for all losses and debts. The proprietor owns all the assests of the business as well as all debts. This means that the owner has no less liability than if they were acting as an individual instead of as a business
  • Close Corporation – while it is no longer possible to register new corporations, any existing corporations are still legal and will operate as normal. A close corporation is generally a smaller corporation and is entitled to operate without the strict formalities normally required in the operation of standard corporations.
  • Private Company – a company whose shares may not be offered to the public for sale and which operates under legal requirements less strict than those for a public company. This is a business structure for entrepreneurs to run their business with no limit on the number of directors. Under the new Companies Act, private companies have become the new standard for business- changes to the law have made their operation easier and cheaper. Registered private companies are granted Proprietary Limited or “(Pty) Ltd” status.
  • Personal Liability Company – these are mostly used by professional partnerships, such as Doctors, Lawyers, Engineers and Accountants, as a minimum of one director is required. The Personal Liability Company and its directors, past and present, are jointly liable for any debts and liabilities incurred. Registered personal liability companies are granted Incorporated (Inc) status.

 

The different entities listed above each have their own peculiarities and risk profiles, the entity you choose however is entirely up to you and the amount of risk you wish to bear.

A word of caution! Should your business have more than one shareholder, we would recommend you talk to a professional to assist you with technical issues like your shareholders agreement, memorandum of incorporation and secretarial duties.

Registering any of the above entities, except the Sole Proprietor, will require you to interact with the Companies and Intellectual Property Commission (CIPC). They are the record keepers and like most official bodies, they tend to make life a little more difficult than it needs be. While the private individual is more than welcome to visit CIPC and process their own registration, our experience has shown that they prefer to make use of a third party to do this for them. Registration with CIPC can take anywhere between five and twenty one working days, so make sure you have made allowance for this in your planning.

For assistance in registering your business structure, shareholders agreements, memorandum of incorporation and secretarial duties contact PheZulu Business Management on info@phezulu.net

 

 

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