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.