Do I really need to form a company?

Knowing the pros and cons of the different types of trading and legal entities is important in making the right choice before registering your business.


What types of trading entities are out there?


· Sole trader


If you trade under your own name, using a “trading as” business name, you are a sole trader. A sole proprietorship (Trader) is a business owned and operated by an individual, and is the simplest form of business entity. Example: Brian Jones T/A “BJ’s Coffee Shop”.



· Partnership

This is when there are two or more owners of the business, who do not form a company, and trade under a “trading as” business name. Example: Bob Smith and Joe Soap, T/A “The two of us Take Away”.







· Closed corporation or CC

This type of entity is being phased out. You are still able, however, to buy a shelf-CC from certain retailers, like the Company Warehouse. A CC is a legal entity registered with the government agency, Companies and Intellectual Property Commission (CIPC). You need to reserve a name for your business, and comply with a number of regulations through annual returns and others.


· Private company


A private company is also registered with the CIPC, using a reserved name. A private company has a limit of 200 shareholders. It is run by Directors (usually some of the shareholders), with specific legal duties. There are also a number of regulations to comply with.


· Business Trust This type of entity is certainly an option, but carries severe tax rates. The trust is usually run by a board of trustees, with beneficiaries receiving benefits. This should only be used in very specific situations, and under the advice of legal and tax specialists.


· Non-profit organisation (NPO) An NPO is the entity used when all profits are re-invested in the company for the benefit of the declared beneficiaries. This entity is used when fund-raising is the main source of income.

These are the most important entities to consider. However, you will need to weigh up all the pros and cons of each option, as each one may present varying pros and cons for your chosen business.


For now, we will look at the types of entities that best suit a small business. Should you wish to explore other entities to ensure you make the right choice for your business, contact The Springboard Academy for a tailored assessment.


Pros and Cons


Here are some of the pros and cons of three entities; sole trader, partnership and company:


In all of these entities and situations, it is critical that all involved parties enter into professional written agreements for working arrangements and responsibilities.

These agreements are seldom required when all things are running smoothly, but will be critical if any of the relationships turn sour and people refuse to communicate with one another.


Get your legal ducks in a row


There are some laws that one cannot avoid, no matter the entity.

- Name

Be absolutely sure you are not using a business name which is already been used.

- Licence

Make sure to get a licence if you need one. For example, if you are working in the liquor trade, a licence is imperative.

- Tax

Make sure you register for income tax (if you are a company, CC or business trust), PAYE and personal income tax.

- Unemployment Insurance (UIF)

Register your company and all your employees for UIF.

- SITE (Skills Levy)

Don’t hesitate to register for skills development if you meet the threshold. Check whether you need to register and submit a “skills-based development plan”.

- Workman’s compensation

Depending on your industry, register for workman’s compensation, which is insurance against employee injury.


Sound like too much work?

Though all of this may seem like a headache, it need not be. All of these checks can be done by your accountant, who can also keep them up to date, together with the relevant annual returns to CIPC and financial statements.


When these are properly set up, the maintenance is not difficult.


Remember that when you work for a boss, you work for your money, but when you work for yourself, you are creating wealth for yourself. And how exciting is that?


This wraps up the basics tips for starting and running a small business. Contact The Springboard Academy should you want more information, or want to suggest another aspect of business to share some basic information.


Watch out for the upcoming series on young and new entrepreneurs, where they share their journey, their challenges and successes.


#Hopeforafuture #entrepreneur #entrepreneurship #smallbusiness #redtape #legalrequirements #agreements #contracts

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