There is considerable paperwork involved in setting up various business entities in South Africa and employing an experienced professional to make the application for you can expedite the process and minimise costly errors. The accountant can also advise on the most suitable business entity for your needs which has significant tax, cost and legal ramification
As per the New Companies Act, Close Corporations - CC - can no longer be registered.
Advice from an Attorney:
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There are four principal legal forms under which you can own and run a small business in
The level of formality required
The most informal of businesses, such as street hawking or spaza shop, would normally trade as a sole proprietor.The majority of trading environments demand only a low level of formality.Some businesses, however, need a highly formal business entity such as a company or, to a lesser extent, a close corporation.A small business owner can start as a sole proprietor or partnership and raise the companys formal standing at a later stage, if the need arises.
Number of owners
Having more than one owner may mean that the choice of business form needs to take into account a formal agreement between the owners.Certain business forms may have advantages over others in this respect.Two owners cannot obviously form a sole proprietorship.
Each business form has its own unique tax rulings and these need to be investigated.They may influence how your business should be legally indentified.In addition, there are tax considerations for the business as well as its owners.
Certain forms make it difficult for the business to continue under the same name.Sole proprietorships are bound to one owner and cease upon sale or death.Partnerships need to be re-formed and documented every time a partner joins or leaves the partnership.Once formed with the authorities, close corporations and companies are considered as separate legal persons with their own unique identity.These entities exist until they are de-registered with the authorities, and thus allow continuity regardless of how many owners come and go.
Forming and maintaining a sole proprietorship is cheaper than forming and maintaining a company.Not only are there costs of initiating the particular business form, but there are maintenance costs also.There exists, for example, a legal requirement that a companys auditor must be a qualified (and therefore expensive]) chartered accountant.A sole proprietor could manage with an inexpensive but experienced bookkeeper.
Certain business forms offer the owner protection against business debts and creditors while some offer no protection at all.A sole proprietor has a joint estate into which personal and business assets are combined.Personal and business creditors have access to this estate.A partnership has joint and several liability, under which any partner can commit the entire partnership without mutual consent.Furthermore, one partner can be held totally responsible by a business creditor to meet the debts of the entire partnership.Juristic business forms such as close corporations and companies are seen as separate legal entities.Debtors and creditors are normally restricted to that entity and not to the owner personally.However, most banks, suppliers and landlords insist that owners sign personal surety for any significant risks, debts or credits facilities of the business.This grants the bank, supplier or landlord a legal right to the owners personal assets.