Have you got your idea nailed down but don’t know which business structure is right for you? Company registration is an exciting step, but also a big one. It’s a decision that needs to be carefully considered so that you make the best choice for yourself and your business.
South Africa offers five different types of business structures for small companies to consider. They differ in growth potential, ownership structure, debt management and profit sharing. It all depends on what you want for the business and what makes the most sense for its success.
So with that being said, below are the five types of business structures in South Africa to consider:
1. Sole proprietorship
A sole proprietorship offers a structure where only one person owns and manages the business. This means that you have the power to make all business decisions and you will receive all the profits.
As the owner and the business are one, the owner must also take accountability and responsibility for all finances, taxes and debts. If the business runs into financial trouble, the owner will be liable to pay the debt as well as have any assets taken if the debt cannot be covered.
Who would this structure suit best? This structure is ideal for a one-man startup or small business where the owner is comfortable taking full accountability of ownership and management.
A partnership business structure can be formed when two or more people own and run a business together. All partners aid the company financially, allowing for a higher amount of startup capital to fuel its success. Plus, with two or more owners the business benefits from additional industry knowledge and expertise, a more distributed workload and a wider network.
Owners must remember that all parties are accountable and responsible for the financials and any debt incurred.
Who would this structure suit best? This structure is right for co-founders of a business or idea, or any group of people who want to enter into and grow a business together.
3. Proprietary limited company (Pty Ltd)
A Pty Ltd is commonly known as a private company as it is registered as a completely separate legal entity. In this structure one or more owners are known as shareholders and the business will continue even if you decide to sell your shares.
Shareholders are not liable for any debts, but are liable for some relevant tax requirements. They also don’t need to explain any financial decisions to anyone but the other shareholders.
Shareholders must remember that as a private company the business cannot be listed on the stock exchange and all financials must be audited when required.
Who would this structure suit best? This structure is best suited to a business owner or owners who want complete control over their management and financial decisions without the opinion of a board or large corporate owner.
4. Public company
A public company, also known as an Ltd, offers a registered business the ability to trade on the stock exchange and open up its shares to the public. This is allowed for the purpose of raising capital.
A public company is registered as a separate legal entity and requires at least one shareholder and three directors for decision making and management purposes.
As a public company, some financials will be available to the public to see.
Who would this structure suit best? Often a public company derives from a partnership, where the owners want to open it up to the stock exchange to raise more capital and company value. This structure is ideal for businesses that have grown substantially.
5. Non-profit company (NPC)
An NPC is registered for the purpose of serving a public or a local community need. No income or profit can be shared by the owners or directors, but must be directed towards the intended objectives.
This business structure requires at least three owners and at least three directors.
Who would this structure suit best? This type of business is best suited to a group of people who want to serve others and meet a need that is currently not being attended to, while raising capital to continue operations.
Once you’ve decided which business structure is best for you, it’s time for company registration with the CIPC. You’ll need:
- A proof of address
- Latest three months’ bank statements
- Incorporator’s certified proof of identification
- Directors’ certified proof of identification
- SARS registration document with your tax number
Consider your business needs to choose the right business structure, and remember, you can change your registration as and when your business grows.