[ Useful Tips when Buying/Selling a Business ]
How should I run my business ?
IF YOU OWN A BUSINESS, YOU NEED TO CHOOSE WHAT BUSINESS ENTITY, OR BUSINESS
VEHICLE, TO USE FOR THE BUSINESS - IN OTHER WORDS WHETHER TO RUN THE BUSINESS
SIMPLY AS A ONE-PERSON SHOW, OR TO USE A MORE COMPLICATED STRUCTURE
LIKE A COMPANY. MOST COMMON IN SOUTH AFRICA ARE SOLE PROPRIETORSHIPS (THE
"ONE-PERSON SHOW"), PARTNERSHIPS, COMPANIES AND CLOSE CORPORATIONS. EACH
HAS ITS OWN CHARACTERISTICS AND LEGAL ADVANTAGES AND DISADVANTAGES.
THE SOLE PROPRIETORSHIP (Anna Adams trading as "Anna's Fish & Chips")
This is the most common for a small-scale businessperson. Here, Anna Adams owns the
business and receives all the profit. There is no distinction between what Anna owns and
what the business owns - they are all the same thing. The income earned by the business is
taxed as if the business is an individual person.
Simple and cheap to organise and easy to discontinue
- Anna has sole right to all the profits
- Anna is free to make own decisions
- Few legal requirements.
Useful Tips when Buying/Selling a Business
THE PARTNERSHIP ("Anna & Partners Fish & Chips Shop")
- No limited liability - in other words if the busines cannot afford to pay its debts, the creditors can make Anna pay those debts
- Limited ability to borrow money.
This is an extension of the sole proprietorship, as there is more than one owner. It is an association of between two and twenty people who have a contractual relationship with each other. In other words there is an agreement between Anna and her partners on how the business is run, what each of them contributes to the business (this can be money. goods or services) and how the profit of the business is shared -
- Easy to organise
- Combined skills
- Greater financial strength.
THE CLOSE CORPORATION ("Anna's Fish & Chips CC")
- No limited liability - if the business cannot afford to pay its debts, the creditors
can go after Anna and her partners for the money
- Decisions about the business need to be made jointly and this can be difficult.
This is a simple, cheap and flexible type of business entity for a small enterprise. A CC exists separately from the people who own the CC - in other words, the law treats a CC as a person in its own right (unlike the sole proprietorship, where the law sees no difference between Anna and her business).
Perpetual succession - in other words, the CC exists separately from its members and
even if one or more members die, the CC carries on existing
- Easy to organise and manage
- Limited liability - in other words, even if the CC cannot pay its debts, the creditors cannot go after the members for the money - this is because the CC exists separately from its members
- Fewer legal requirements than private company.
THE PRIVATE COMPANY ("Anna's Fish & Chips (Pty) Ltd")
- Special tax rates apply
- Maximum of 10 members
- CCs are governed by the Close Corporations Act and there are more legal requirements
than for the sole proprietorship or partnership - for example the need to appoint
an accounting officer.
As with a CC, a company has a separate existence from its owners. A company is a more
sophisticated and more complicated business entity than a CC.
- As with a CC, there is perpetual succession and limited liability
- It can be easier to borrow money and to expand
- It is adaptable to both small and large businesses.
- Special tax rates apply
- It is more difficult and expensive to organise and run
- Companies are subject to the Companies Act and many legal requirements apply,
for example the need to appoint an accountant, to prepare financial statements.
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