A Simple Guide to Setting Up Your Business
For many starting out in business, how they structure their company to begin with will have a significant impact on their efficiency, profitability, liability and risk. It’s an important choice. To help get you started, we’ve devised this Simple Guide to Setting Up Your Business, so you can get set up, and start getting on with business.
Sole Trader
Structure
The simplest business model available; a sole trader is an unincorporated, low-cost business form.
Advantages
Low administrative, legal and associated costs; all profits are returned to the principal.
Disadvantages
An unlimited liability for personal debts, injury or negligence that may result from their business activities.
Taxation
Individual taxation rates applied to income.
Partnership
Structure
Two or more individuals enter into an agreed ‘business in common’ relationship. It is an unregistered business form.
Advantages
Relatively low administrative, legal and associated costs; all profits are returned to the partnership. All partners entitled to remuneration and are involved in the management.
Disadvantages
Partners have an unlimited liability for both theirs and their partner’s actions in business. They can be liable for debts, injury or negligence and can be bound by contracts made under the partnership.
Taxation
The partnership itself cannot be taxed, only the individuals who form it. A partnership must register for GST when threshold is met, and losses may be shared amongst the partners.
Trust
Structure
Is a legal relationship regarding the holding of property or legal interests, on behalf of beneficiaries
Advantages
Liability is limited to the assets of the trust; offers a form of limited liability. A trust can be held by both individuals or corporations.
Disadvantages
Subject to complex trust laws, which may require legal advice in establishing and maintaining; greater degree of complexity with ongoing administration.
Taxation
May be divided amongst the beneficiaries, may have potential for CGT discounts, must be registered for GST when threshold is met.
Proprietary Limited (Pty. Ltd.)
Structure
Is a registered corporation and a separate legal entity. It is subject to corporation laws of administration and governance and is controlled by directors. A corporation can have shareholders as members.
Advantages
Is a separate legal entity, has limited liability regarding debts, negligence and injury, can retain profits in the company, has taxation benefits.
Disadvantages
It is a more expensive form to maintain, greater degree of administration and finances are reported regularly. Control can also be shifted.
Taxation
Regular reporting through BAS, must register for GST when threshold is met, subject to a flat rate of tax.