South Africa’s e-Commerce industry is alive and thriving. And with the COVID-19 pandemic pushing more and more entrepreneurs to dabble in the online space, small businesses can get online and sell in a much shorter space of time.
If you’re one of those entrepreneurs who has made the most of what the e-Commerce world has to offer, and your customers and sales are not only flowing, but increasing, it might be time to consider registering your company. But the whole process can seem a bit daunting if you’re not clued up on the ins and outs of company registration.
Does my company have to be registered to operate?
First things first, you don’t have to register your company formally with the Companies and Intellectual Properties Commission (CIPS) just to sell online. You can operate your business as a Sole Proprietor or as a Partnership:
- Sole Proprietor: You are personally responsible for all the financial risks undertaken by your business. If your business runs into debt, you and only you are liable for paying it back. There are minimal administrative tasks and costs and you pay taxes on your profit.
- Partnership: Similar to a sole proprietor, except that two or more people are responsible for the company. Each person will be taxed on their own individual profit.
So, now that this has been established, how do you know it’s time for your business to move from Proprietor or Partnership to a registered private company?
We’ve outlined the signs you need to look out for that reveal it would be beneficial to register your business.
1. You want to protect your personal assets
If your business has grown to a point where you’re renting or have bought an office or workspace, and your digital and human resources have grown from the one or two-man show that it used to be, you now have numerous assets and financial obligations to take care of. In the event that your profits fall and you go into debt, your personal assets can be taken by your creditors.
To safeguard these assets, registering your company will ensure that they can’t be touched in the event that your business fails.
2. You want to apply for funding
Are you at a point in your business journey where you know you need to expand — perhaps you need to hire a few extra hands, or need to move into a bigger warehouse — but you’re lacking the capital to do so despite knowing it will open your business up to more customers? As a Sole Proprietor or Partnership, you won’t be able to apply for funding or a business loan. This makes it tricky to expand if you don’t have private funding behind you.
If funding is what your small business needs to get your expansion plan going, now’s the time to register your company.
3. You want to improve your business credibility
Company registration signals trust. From securing funding to assuring potentially new customers, your registration adds an immediate element of credibility to your business operations. Whether you’re looking to find new suppliers, pitch your business to a larger company or secure a loan for a new machine, registering your company will make all those who deal with your business far more likely to want to jump in and get involved.
4. You want to to be tax efficient
As a Sole Proprietor or Partnership, you will be taxed based on your individual profit based on a sliding scale. This means that the more you earn, the more SARS will deduct from your income. If your profit has increased substantially since your startup days, you will be taxed significantly more than you were five or ten years ago.
As a registered company, SARS will tax your business at a flat rate of 28% of your profits, whether they go up or down. As your company profits grow, it is more tax efficient to register your company and not pay an increasing amount to SARS when the resources could go back into growing your business.
If you’ve come to the conclusion that it’s time to register your small business, there certainly are a number benefits in doing so. It’s main attraction though, is the wider access to funding to help your small business continue to grow. Plus, contrary to popular belief, once you’ve organised what’s needed to register your company, the process is pretty straightforward and simple.