The decision to become master of your own destiny by owning a business appeals to many. To those who follow through with their ambitions, the realisation that this can’t be accomplished without first registering your business can be daunting.

Entrepreneurs have two avenues open when it comes to registering a business. Both have requirements that must be fully considered before a decision is made.

A sole proprietor

The easiest option is the sole proprietor (sole prop). All that is needed is for a business owner to open a bank account, which registers your name and the identity you will be trading under, for example John Doe trading as (T/A) ABC Consulting.

An important consideration for this option however is that it places your personal assets at risk.  If the business fails, then so do you in your personal capacity, and hard-earned assets and cash are lost. A sole prop’s net profit is taxable from the first rand made through to a maximum of 42%. This is in line with the PAYE due if you were an employee at a company.

A sole prop is also not eligible for the concessions offered to registered small companies.

These concessions include:

• The first R63 556.00 of net profit attracting no tax at all;
• Tax at a rate of 7% applying to net profits from R63 557 to R350 000 and;
• Tax at a rate of 28% applying to net profits over R350 000, which matches that applied to corporate companies.

Deciding to trade as a sole prop may be suitable if you are running a home-based business, supplying products to small outlets. However, many suppliers and customers may want the protection afforded them by the New Companies Act and Consumer Protection Act. This applies to a properly registered company.

A company

The company (Pty) is the second option for registering your business. This option does have extensive administrative and statutory requirements and legal implications. As is to be expected, tax implications are also different.

The primary benefits of this option are:

• It is a legal entity separate from its shareholders;
• Shareholders have a limited liability, which means that they cannot be called upon to contribute to the debts of the company, which is limited by share capital.
• There is perpetual succession, so the company continues to exist even if the individual shareholders and/or directors change.

The criteria for a private company are also specified, so the requirements relating to the number of shareholders and directors should be closely studied.

The registration of a private company is complicated and is easiest undertaken by using the services of a professional to ensure that registration is completed efficiently.

In addition to this, annual fees need to be paid during the anniversary month of the registration of your company.  Failure to pay these fees results in automatic de-registration of your company, which means that you will be trading illegally.

Don’t forget to register for tax

Irrespective of whether you trade as a sole prop or private company, remember that you will also need to register for:

• Company Tax, which is payable semi-annually;
• VAT (Value Added Tax), which takes effect when turnover reaches R1 million;
• PAYE (Pay as you Earn), UIF (Unemployment Insurance Fund), SDL (Skills Development Levy), and Workmen’s Compensation, which are required if the business hires staff and then registers as an ‘employer’ with SARS and the Department of Labour.

Keep your records

For a private company, record keeping is an important requirement. Records must be held by the directors at the registered office of the private company. These include:

• The minute book of the annual general meetings (AGM) of the company;
• Accounting records, including a register of fixed assets;
• Registers of allotment of shares; members’ pledges and bonds; debenture holders; directors and officers; the material interest of directors and/or other Insiders in the shares and/or debentures of the company; and the attendance record of directors’ and/or managers’ meetings.

Though it may seem strange, a minute book for directors’ meetings and the AGM has to be maintained even if you are the sole shareholder and owner of a private company. Basically you will have to have a meeting with yourself, in order for you to appoint yourself as a director and then accept yourself as a director.

If you need the help of a professional in getting your company registered and registered with SARS, and/or for your record keeping needs, please do not hesitate to contact me at estelle@simplyadminsa.co.za